Levine on Wall Street: BofA Battleship

De-bank the banks

Ken Griffin, who runs Citadel, told the DealBook conference yesterday that "if I could wave a magic wand, I'd break up the banking system." Citadel is an interesting business in that it is part hedge fund and part occasional entrant into businesses -- market-making, securities underwriting -- that have traditionally been done by investment banks. And investment banks these days are mostly wrapped in the warm embrace of bank holding companies with Fed, FDIC and too-big-to-fail advantages not available to Citadel. So you could see why Griffin would think that's unfair. And, I mean, he's not wrong; there's no particular reason why market-making or securities underwriting need to be done by Fed-regulated-and-backstopped banks. For most of the last century they weren't, and the new regime comes with regulatory headaches as well as funding advantages. "I would, in a sense, de-bank Goldman Sachs or Morgan Stanley," Griffin said, and these days Goldman and Morgan Stanley might take that deal. Since they're banks, unlike Citadel, they don't get to run giant hedge funds any more.