Tags: Dodd | Weill | Big | Banks

Dodd: Weill Is Wrong, Breaking Up Big Banks Is Too ‘Simplistic’

Thursday, 26 Jul 2012 11:35 AM

Breaking up big banks won't solve the problems threatening the financial system, namely an inability to control risks, says former Sen. Christopher Dodd, co-author of the Dodd-Frank financial-overhaul law.

Former Citigroup chairman Sanford “Sandy” Weill, an early architect of today's financial behemoths, has said that big banks need to be split up, with investment banking services operating under one roof and commercial banks under another.

The repeal of the Great Depression-era Glass-Steagall Act in the 1990s allowed for banks to run both investment and commercial banking operations.
Managing risk, Dodd pointed out, should take priority over trimming a bank due to its size.

"The legislation allows for the draconian step to be taken if necessary not just with banks but with institutions that pose substantial risk to the country, they have the power and authority under this legislation to actually do that," Dodd told CNBC, referring to his financial reform law.

"It's not just the size of an institution, but how much risk they're assuming by their activities. So the idea of having necessarily breaking up these institutions is going to solve the problem I think it's frankly too simplistic an approach," Dodd added.

"It should be done in some cases under certain circumstances but that's not the solution to the problem."

Officially known as the Dodd–Frank Wall Street Reform and Consumer Protection Act, the legislation gives regulators greater say-so on bank capital requirements, liquidity levels and risk-management practices and would also ban banks from trading their own money for profit in capital markets.

Weill grabbed headlines recently when he said too much debt and not enough transparency has made it necessary to dismantle large supermarket banks.

"I think what we should probably do is go and split up investment banking from banking, have banks be deposit takers, have banks make commercial loans and real estate loans, have banks do something that's not going to risk the taxpayer dollars, that's not going to be too big to fail," Weill told CNBC.

"They would be entities on their own like they were 25 years ago."

Other bankers have said U.S. financial institutions have gotten too big and too risky, including John Reed, the former chief executive of Citicorp who worked with Weill during the 1997 Citi merger with Travelers.

Big banks engaged in risky activities that nearly brought the U.S. financial system to collapse in 2008.

"It wasn't that there was one or two or institutions that, you know, got carried away and did stupid things. It was, we all did ... and then the whole system came down," Reed told Bill Moyers' public television show in March, as reported by Reuters.

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