Sandy Weill, the legendary former CEO of Citigroup, shocked Wall Street last month when he called for the break up of big banks.This was surprising because Sandy Weill essentially created the big bank model when he led the merger of Citicorp and travellers.
Today, William B. Harrison Jr. — the banker who led the merger that resulted in JPMorgan Chase — has an op-ed in today’s New York Times defending the big bank model.
Banks aren’t always popular even in the best of times, but the anger of recent years is unprecedented. The anger, while understandable, has fuelled the misguided idea that we should break up the nation’s largest banks.
Harrison argues that the key criticism are actually fallacies. We summarize his points here:
- Big banks aren’t an unnatural phenomenon. Banks got bigger because in the 1990’s, the banking system was highly fragmented and inefficient. “The consolidation that took place was driven by the market’s needs and represented an evolution toward greater efficiency in banking, just as companies like Amazon, Starbucks and Home Depot brought efficiency to retail,” he wrote.
- Big banks aren’t to blame for the financial crisis. “None of the first institutions to fail during the crisis — Countrywide, Bear Stearns, IndyMac, Fannie Mae and Freddie Mac, Merrill Lynch, Lehman Brothers, the American International Group — were universal banks,” he wrote.
- Big banks aren’t as complex as smaller financial institutions. “Remember that smaller financial institutions — look at MF Global, Bear Stearns, Knight Capital — have had their share of risk-management failures too,” he wrote.
Many will probably disagree with the latter two points.
Harrison goes on to address more of the critisms.
But his ultimate defence of the big bank model is one he hear frequently:
America’s largest businesses operate around the world and simply have to work with international banks. If they can’t work with a global bank based in America, then they will work with one based overseas. Losing that business to other countries would damage our national competitiveness, economic vitality, job creation and clients who want a choice of financial services. One of America’s great strengths is that we are home to the broadest, deepest and most efficient capital markets in the world. It’s a competitive advantage that we can’t afford to lose.
Read Harrison’s whold piece at NYTimes.com.