Citigroup: Really Big May Not Be Better

For sheer audacity, the Citicorp-Travelers Group Inc. merger is hard to beat. In one mammoth leap, the world of finance is forever changed. Punching through a welter of archaic laws, the giant $70 billion Citigroup is a bold financial model for the global, digital age.

The goal, of course, is to offer everyone around the world a similar package of banking, investing, and insurance products they dearly need. Aging populations, privatizing pension programs, and booming stock markets are opening up global opportunities. The spread of the Net and digital technology provides the means of distribution. It all makes sense. Sort of.

The trends are real, but a colossal bank holding company may not be the optimum business model for the digital era. The Net is disaggregating all kinds of industries, allowing customers to get into direct contact with products. Why buy stock insurance from Citigroup when an enormous variety of these products are available from the Net? Charles Schwab & Co. is already a kind of virtual brokerage. Some 30% of all retail stock trading is on the Net. Small or virtual may be as viable financial models in the 21st century as big. Maybe more.

Then there is the problem of who regulates the behemoths. Banks the size of Citibank are "too big to fail," and in nearly every past business cycle the Federal Reserve has had to bail them out. Will monetary policy now be used to bolster bank earnings if insurance or stock problems threaten the health of Citigroup? We hope not. We also hope the Fed centralizes the supervision of these giants under its wing.

Oh, yes. Now that the real world has bypassed Congress once again, we expect the legislators to finally update the 1933 Glass-Steagall Act. Citigroup has just made it meaningless.