The notion of Universal Banking

  • Glass-Steagall (enacted during the Great Depression) stipulated that traditional, relatively low-risk banking such as taking deposits and making loans could not be undertaken by the same institutions that were involved in higher risk investment banking activities
  • In 1999, the Glass-Steagall Act was repealed to move beyond straightforward bank borrowing, and tap the capital markets directly
  • We were wrong about two things, majorly:
    1. Scale brings costs down – very few cost efficiencies that come from the merger of functions
    2. Culture – Mixing incompatible cultures is a problem all by itself
  • Traditional bankers – extroverts, sociable, focused on long term relationships, customer centric and are risk averse
  • Investment bankers – short termist, focused on immediate reward, seek risk, product centric
  • Need for a modern Glass-Steagall law, which would effectively end the universal banking model

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