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No one was a more forceful advocate than Weill of rolling back the Depression-era Glass-Steagall law that had separated commercial banks from their risky investment banking operations. Weill, along with John Reed, oversaw the 1998 combination of Travelers Group Inc. and Citicorp with the goal of cross-selling a full range of financial products, from merger advice to retirement annuities. Bank of America Corp. and JPMorgan Chase & Co. followed with mega-deals of their own.
What Weill never foresaw was that building huge banks would strain the unwritten policy known as too big to fail, a term first invoked in 1984 when the government was forced to prop up Continental Illinois, then the nation's seventh-biggest bank. Regulators covered all deposits -- not just insured accounts -- and spared bondholders from suffering losses.
Today, the implications are well understood: The government deems it unthinkable to let any major bank or other financial institution fail lest it drag down other banks and destroy the economy. Bankers are free to engage in behavior that puts their firms at risk, collecting outsize pay if their bets pay off. If they don't, taxpayers absorb the losses.
That Weill now understands the implications of his vision says a great deal.
What Weill never foresaw was that building huge banks would strain the unwritten policy known as too big to fail, a term first invoked in 1984 when the government was forced to prop up Continental Illinois, then the nation's seventh-biggest bank. Regulators covered all deposits -- not just insured accounts -- and spared bondholders from suffering losses.
Today, the implications are well understood: The government deems it unthinkable to let any major bank or other financial institution fail lest it drag down other banks and destroy the economy. Bankers are free to engage in behavior that puts their firms at risk, collecting outsize pay if their bets pay off. If they don't, taxpayers absorb the losses.
That Weill now understands the implications of his vision says a great deal.
Yep. If it's too big to fail, it's just too damned big.