Kim Chipman and Christine Harper write:
Parsons Blames Glass-Steagall Repeal for Crisis: 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. The 1999 repeal of the Glass-Steagall law that separated banks from investment banks and insurers made the business more complicated, Parsons said yesterday at a Rockefeller Foundation event in Washington. He served as chairman of Citigroup, the third-biggest U.S. bank by assets, from 2009 until handing off the role to Michael O’Neill at the April 17 annual meeting.
“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.”
But the obvious channel--universal banks use the fact that so much of their liabilities are government-guaranteed deposits to play "heads we profit, tails the government pays"--was not active. Universal banks were no more risk-loving in the 2000s and were much more stable when the crisis came than were their pure shadow-bank counterparts.
There is an argument that competition from universal banks entering the market--Citi, Chase, BofA, Wells-Fargo--induced the pure investment banks to take on excessive risks. But I have never found that argument terribly convincing…