Former TARP inspector general Neil Barofsky called for an "up-to-date" version of Glass-Steagall, Wednesday, during an appearance on CNBC's Kudlow Report, in response to the widely reported comments of former Citigroup chairman Sandy Weill, that investment banks should be separated from commercial banks. When host Larry Kudlow asked Barofsky if it is possible to break up the big banks and reinstate Glass-Steagall, Barofsky replied that "It's both possible and it's necessary."
Barofsky said the financial incentives were too great for bankers not to make risky investments with depositors' money. "Ultimately, we get the banks down to a manageable size, and if they make bad risks and blow up, the taxpayer doesn't have to bail them out," he said. "We can do this through common sense, not through complex games that are set up that the banks can weave their way through the loopholes and accumulate risk. All this is about is monetizing the implicit guarantee, the subsidy the taxpayers provide through too-big-to-fail. We need to break them up. Otherwise, we are going to see a repeat of the same crisis," he said.
On the other side was H. Rodgin Cohen of law firm Sullivan and Cromwell, who defended the current system and repudiated the idea that the banks had anything to do with the financial crisis. He called for "robust regulation" of banks to include strict capital requirements and things like that, but he opposed Glass-Steagall. Barofsky, in response, said that the banks absolutely were to blame. "We had decades of bank stability under Glass-Steagall," he reminded Kudlow, "and what we need is a modern, up-to-date version of Glass-Steagall."