In a surprising change of heart, the man who shattered the Glass-Steagall Act and practically invented too-big-to-fail banks called for strict new regulations yesterday. Sandy Weill, the orchestrator of the merger of Travelers Group and Citicorp in the late ’90s, commented on CNBC’s Squawk Box (watch video) that “what we should probably do is go and split up investment banking from banking … and have banks do something that’s not going to risk the taxpayer dollars, that’s not going to be too big to fail.”
Weill’s statement was quite a shock, considering the source. But it’s not unlike a similar statement made by his former Citigroup co-CEO, John Reed, who publicly apologized in 2009 for his role in the financial crisis. Here’s Reed explaining his position in an interview broadcast on Moyers & Company earlier this year.
You may recall that the Citigroup deal was in violation of a Depression-era law called the Glass-Steagall Act, which separated insurance companies, commercial banks and investment firms — but that didn’t stop Weill. With a nod and a wink from then-Fed chairman Alan Greenspan, Weill, head of Travelers, and John Reed, chairman of Citicorp, joined forces to form the behemoth Citigroup in 1998.
Weill and others had already made some headway in lobbying against Glass-Steagall, and the Fed gave them the space to operate legally for two years to see whether Congress would tear down the law completely. In that time, he lobbied hard, and won. By 2000, Bill Clinton had signed the Financial Services Modernization Act, a.k.a. the scrapping of Glass Steagall. A decade later, the repeal of Glass Steagall was widely considered a major cause of the 2008 financial collapse.
Watch Bill’s full interview with Reed and learn more about the history of the deal and The Glass-Steagall Act.