“If you live long enough, you will see everything.”* Looks like I’ve lived long enough, because I’ve seen Sandy Weill do a 180. Background: In the late 1990s, Citigroup Inc. — led by Sanford “Sandy” Weill and augmented by Alan Greenspan, then-chairman of the board of governors of the Federal Reserve Bank — orchestrated the demise of the Glass-Steagall Act. Glass-Steagall had been enacted in the 1930s, as a reaction to the Great Depression, to safeguard against another economic devastation. Essentially it created a wall between banking and commerce, with “commerce” including insurance, securities investments and other financial services underwriting activities. That wall came down in 1999, when Glass-Steagall was dismantled by the Gramm-Leach-Bliley Act, championed by Sandy Weill and others.
But last week the 79-year-old Weill had a late-life epiphany and stated that we should indeed break up big banks and reinstate something similar to Glass-Steagall to keep banks out of the investment securities underwriting business. Incredible! The father of consolidation now says we should kill his creation.
I must disclose that in the 1990s, I opposed the abolishment of the Glass-Steagall Act and fought against the passage of Gramm-Leach-Bliley. I believed that banks should be permitted to sell insurance products and investment securities, but I struggled with banks’ underwriting insurance or investment securities. I also believed that other industries should be permitted to offer bank services. For instance banks should be the exclusive domain of direct commercial, residential mortgage and agricultural lending, and they should independently manage the payments system. In other words, banks should be the only entities to provide banking services.
The board of directors of the Indiana Bankers Association has not yet taken an official position on this topic. At the appropriate time, the board will have a thorough discussion, and our position will depend on the options being debated and what we believe is in the best interest of the banking industry. I welcome that discussion. And, since I have lived long enough to see everything, perhaps my position will change, too, like Mr. Weill’s did.
* Quote attributed to Dr.Harold Pillsbury, professor at the University of North Carolina School of Medicine.