Former Merrill Lynch & Co. Chief Executive Officer David Komansky said he regrets promoting the 1999 repeal of the Glass-Steagall Act that separated commercial and investment banks.
“Unfortunately, I was one of the people who led the charge to try to get Glass-Steagall repealed,” Komansky, 71, said in a Bloomberg Television interview today. “I regret those activities and wish we hadn’t done that.”
Glass-Steagall, enacted in response to the Great Depression, sought to curb speculation at depository banks by separating them from institutions involved in capital markets. The global financial crisis prompted debate about whether the law’s repeal helped spawn reckless lending and fueled risk-taking, leading to a $700 billion U.S. bailout of troubled firms.
Events after the law’s repeal may have unfolded differently if U.S. market watchdogs including the Securities and Exchange Commission had more vigilantly enforced rules that remained on the books, Komansky said.
“Of course, when I was running a firm I didn’t want them to strictly enforce them,” he said.
Merrill, the world’s biggest broker at the time, agreed to be bought by Bank of America Corp. on the same September 2008 weekend that Lehman Brothers Holdings Inc. collapsed. Komansky said that deal, which was completed in 2009, “broke his heart” as it ended the independence for the firm he joined in 1968. He was CEO from 1996 to 2002 and retired as chairman in 2003.
‘Not Merrill Lynch”
“As I look at it, it’s Bank of America, not Merrill Lynch,” he said. “They happen to use the Merrill Lynch name on the wealth management-side of the business.”
Whether the firm does well depends “on how well Bank of America can implement their culture and their management systems.” he said.
John S. Reed, former co-chief executive officer of Citigroup Inc., also said in January that U.S. lawmakers were wrong to repeal Glass-Steagall.
Senators Maria Cantwell, a Washington Democrat, and John McCain, an Arizona Republican, are working on an amendment to split commercial and investment banking, Cantwell’s office said earlier this month. The amendment is based on a proposal Cantwell and McCain offered in December to reinstate Glass-Steagall.
President Barack Obama’s proposals to overhaul financial regulation also include the Volcker rule, named for former Federal Reserve Chairman Paul Volcker, which would require banks to exit the business of trading for their own account.
“I do think there’s a need for some type of regulation in that area,” such as placing controls on how much risk a deposit-taking institution can take, Komansky said. “Whether or not the Volcker rules per se are the answer, I think the spirit of the Volcker rules probably is appropriate.”