Richard Parsons, the former chairman of mega-bank Citigroup (who stepped down from his post just a few days ago), said yesterday that the repeal of Glass-Steagall — the Depression-era regulation separating investment and commercial banking — helped precipitate the financial crisis of 2008:
Richard Parsons, speaking two days after ending his 16-year tenure on the board of Citigroup Inc. (C) and a predecessor, said the financial crisis was partly caused by a regulatory change that permitted the company’s creation. [...]
“To some extent what we saw in the 2007, 2008 crash was the result of the throwing off of Glass-Steagall,” Parsons, 64, said during a question-and-answer session. “Have we gotten our arms around it yet? I don’t think so because the financial- services sector moves so fast.”
It was Citigroup that was the first big beneficiary of the repeal of Glass-Steagall, which allowed Citibank to merge with Traveler’s Group to form Citigroup. Former Citigroup Chairman Sandy Weill used to have a portrait on his office wall that proclaimed him, “The Shatterer of Glass-Steagall.” Of course, Citigroup needed to bailed out during the financial crisis of 2008.
Parsons is not the only former Citi executive to see the light of day when it comes to deregulation. Former CEO John Reed has said that investment banking and commercial banking should once again be separated, taking banking back to where it was before the deregulatory zeal of the 1990s took hold.
Parsons doesn’t advocate such a step, and of course, his admission is more than a decade too late. “Why didn’t he do something about it when he had a chance to?” asked financial analyst Mike Mayo. Just yesterday, federal regulators gave banks two years to fully comply with new rules meant to prevent them from engaging in risky trading with taxpayer-backed dollars.