Former Goldman Sachs executive Gary Cohn said he supports breaking up the too-big-to-fail (TBTF) banks that have grown to be behemoths through acquisitions.
In a private meeting with lawmakers, White House economic adviser Gary Cohn said he supports a policy that could radically reshape Wall Street’s biggest firms by separating their consumer-lending businesses from their investment banks, said people with direct knowledge of the matter.
Cohn, the ex-Goldman Sachs Group Inc. executive who is now advising President Donald Trump, said he generally favors banking going back to how it was when firms like Goldman focused on trading and underwriting securities, and companies such as Citigroup Inc. primarily issued loans, according to the people, who heard his comments.
The remarks surprised some senators and congressional aides who attended the Wednesday meeting, as they didn’t expect a former top Wall Street executive to speak favorably of proposals that would force banks to dramatically rethink how they do business.
Yet Cohn’s comments echo what Trump and Republican lawmakers have previously said about wanting to bring back the Glass-Steagall Act, the Depression-era law that kept bricks-and-mortar lending separate from investment banking for more than six decades.
In the years after the law’s 1999 repeal, banks such as Citigroup, Bank of America Corp. and JPMorgan Chase & Co. gobbled up rivals and pushed into all sorts of new businesses, becoming one-stop-shopping financial behemoths.
How true. Here is a chart of bank aggregation which resembles an economic version of the Bruce Willis film “Last Man Standing.” Call it Last Bank Standing.
It will not be easy to break up the TBTF banks, of course. Other nations have similar banks that are broad- based in terms of merging lending banks with investment banks (and insurance companies). And they have been unsuccessful, for the most part, in breaking up big banks.
And remember, The Federal Reserve approved of the massive bank aggregation. Depository concentration be damned.
In 1994, Congress prohibited any bank holding company from making an interstate acquisition of a bank if it would result in the acquirer controlling 10 percent or more of the total insured deposits in the United States. The 10 percent deposit cap was not binding on any firm when it was imposed in 1994, but acquisitions by large commercial banks brought three firms up to the cap, and acquisitions of institutions not covered by the deposit cap put Bank of America above the cap. Growth of deposits generally, as well as each firm’s internal growth, could affect these calculations over time.
Dodd-Frank is merely one impediment to shrinking the TBTF banks. The Consumer Financial Protection Bureau (CFPB) is helping to grow the shadow banks (e.g., non-depository financial institutions) such as Quicken through regulation.