Citigroup Merger Violates Glass-Steagall, Forces Deregulation

Citicorp CEO John Reed and Travelers Group CEO Sanford Weill announce on April 6, 1998, the merger of their companies to form Citigroup, a $140 billion conglomerate combining banking, securities, and insurance services under brands including Citibank, Smith Barney, Primerica, and Travelers. The merger directly violates both the Glass-Steagall Act of 1933 and the Bank Holding Company Act of 1956, which prohibited exactly these combinations. The Federal Reserve grants Citigroup a temporary two-year waiver in September 1998, based on the assumption that the companies “would be able to force a change in the law.” Weill’s deal with the Fed requires eliminating all Glass-Steagall violations within two years or face forced divestiture, creating intense pressure to repeal the Depression-era banking safeguards. Weill cultivates powerful allies including Senator Phil Gramm, Treasury Secretary Robert Rubin, Deputy Treasury Secretary Larry Summers, and Fed Chairman Alan Greenspan to support overturning Glass-Steagall. The lobbying push becomes so intense that the eventual legislation (HR10) is referred to as “the Citi-Travelers Act” on Capitol Hill. In his memoir, Weill brags that he and Senator Gramm joked the legislation should be called “the Weill-Gramm-Leach-Bliley Act.” The merger demonstrates how too-big-to-fail institutions can commit flagrant violations of financial regulation, then use their political power to retroactively legalize their illegal conduct, establishing a precedent for lawless behavior by financial giants that will contribute directly to the 2008 financial crisis.