Banks don't lose money. People lose money.
That seems to be the feeling of Richard Kovacevich, the former chairman and CEO of Wells Fargo. "Why this concept that investment banking is risky?" Kovacevich asked the Wall Street Journal on Wednesday. "Investment bankers are risky, not investment banking."
Kovacevich was reacting to the recent, totally unexpected declaration from ex-Citigroup CEO Sandy Weill that commercial banks and investment banks ought to be kept separate, instead of blending their operations. Weill's pronouncement caused many a jaw to drop, since he was previously known as a guy who took enormous pride in helping to nullify the Glass-Steagall Act -- the Depression-era legislation that for decades kept retail banks away from risky Wall Street companies, until it was repealed in 1999.
Kovacevich's take on the matter is that investment banking is per se a fairly vanilla business, according to the WSJ. If we were to wall off investment banks from commercial banks, he said, investment bankers would try to make up the difference by taking on bigger risks. Hence, we should keep Glass-Steagall off the books and allow commercial and investment banks to keep operating under the same roof.
Kovacevich, like many in the banking industry, has a bit of a record when it comes to questioning the usefulness of financial regulators. He once condemned the Troubled Asset Relief Program as "one of the worst economic decisions in the history of the United States," saying that among its ill effects was "the biggest increase in banking regulations in history." And he's written that he expects the Dodd-Frank Act to be ineffective in preventing the next financial crisis.
Of course, not everyone shares Kovacevich's view about the necessity of Glass-Steagall, although former Republican Senator Phil Gramm comes down on his side. There's a fairly vocal contingent of analysts who say that while the lack of a Glass-Steagall Act didn't by itself bring about the financial crisis, it's nevertheless an important law to have in place if we want to keep banks from accruing too much economic and political clout and becoming too big to fail.