Too big to fail is a bad idea.
You may not know his name, but Sandy Weill is the man who started today’s megabank trend when back in 1998 he merged Citigroup and Travelers Group. The importance there is that it created the world’s largest bank and required Congress to repeal the Glass-Steagall Act. Mr. Weill now says that America’s biggest banks should be broken up. He is right -- the repeal of Glass-Steagall was an expensive mistake.
The Glass-Steagall Act prevented banks from taking deposits from customers while simultaneously using that money to gamble in the markets. Federally insured deposits, where taxpayers assume the insurance risk, could then be used by banks to enhance their profits while sharing the risk with John Q. Taxpayer. The results became evident in 2008 and again in 2012 with JP Morgan’s $6 billion trading losses.
The Dodd-Frank Act seeks to remedy this to some degree with the Volker Rule. Banks and Wall St. firms are vehemently opposed to the Rule, as it will curtail their profitability. Tough. They should risk their own money and not the deposits they have been entrusted with and certainly not taxpayer-insured funds. Their profits would take a hit, but "too big to fail" would pass away from the banking lexicon.