The man who was one of the chief architects of the “Big Bank” model now says says the United States never should have repealed the Glass-Steagall banking act in 1999. He spells out the two biggest flaws:
1. Big banks aren’t more efficient.
His exact wording is: “One was the belief that combining all types of finance into one institution would drive costs down — and the larger the institution the more efficient it would be. We now know that there are very few cost efficiencies that come from the merger of functions — indeed, there may be none at all.”
2. Big banks have bad cultures.
“The second thing we were wrong about has to do with culture — and this turns out to be very serious. Mixing incompatible cultures is a problem all by itself. It makes the entire finance industry more fragile,” he wrote.
But many — including Bill and Hillary Clinton — are pushing back against the notion that the repeal of Glass-Steagall caused the crisis or made the financial system worse.