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The Barrier to Breaking Up the Banks

Stand-alone securities firms would lose the benefits of cheap deposits and federal backing
The Barrier to Breaking Up the Banks
Piggy Bank: Andrew Paterson/Alamy; Illustration by 731

Wall Street banks are fending off calls to break up from stockholders, analysts, and industry veterans like former Citigroup Chief Executive Officer Sandy Weill, who arranged the 1998 merger of Travelers Group and Citicorp that ushered in the era of so-called universal banks. Critics say the banks are too complex to manage, are overburdened by regulation, and have trading operations that pose a risk to taxpayers because they’re so big that the government would be reluctant to let them fail. One sign of investor displeasure: The stocks of Bank of America, Citigroup, Goldman Sachs Group, and Morgan Stanley all trade below liquidation value—the theoretical amount that would be left after selling all the banks’ assets and paying off their liabilities.

Despite the complaints, executives of big Wall Street banks are likely to cling to the status quo, which gives them two advantages: cheap funding in the form of deposits and lower borrowing costs because investors believe the government stands behind them.