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Yes, megabanks provide useful, all-in-one services. But their biggest customers challenge the argument that financial behemoths should be held together for their sake.
August 21 -
In a Harvard Business Review op-ed, ex-Citigroup and Bank of America executive Sallie Krawcheck provides a glimpse of how she'd run a bank if given the chance.
May 24
Critics of big banks have raised "a legitimate question" of whether the marriage of commercial and investment banking is too unwieldy, a former JPMorgan Chase (JPM) executive said Wednesday night.
Heidi Miller,
The big banks haven't answered the question of "at what point does scale also breed diseconomy, or diseconomies of [being] too large. So that's a legitimate question and I don't think the banks have actually answered it well," Miller said in an interview after a panel discussion in New York City.
JPMorgan Chase is currently the country's largest bank by assets, and Miller's former boss, Chief Executive Jamie Dimon, has been one of the most vocal defenders of the megabanks. He and other bankers have argued that the biggest banks, with both investment and commercial arms,
Miller agreed with that argument on Wednesday — to a point.
"The premise of putting …businesses together to get leverage and synergies across those businesses actually bears out," she added. "Whether we've passed that in terms of absolute size, we haven't argued well enough for me to answer, at least positively, that it's a diseconomy."
Miller cited some of the industry's arguments that the big banks can offer diversified, all-in-one services that smaller commercial or investment banks can't handle with the same efficiency. But banks need to get better at making that case, she said.
"The largest banks have done themselves a disservice by not making it clear what the benefits are from their many diversifications, across different businesses that naturally use certain systems, whether it's a market that uses a branch, asset management that uses client services or investment banking that uses custodial services," Miller said.
"I don't think we've made that as clear an argument &mdasb; the largest banks have not made that as clear as they can," she added.
The debate over banks' size and diverse businesses was revived this summer by former Citigroup (NYSE: C) CEO Sandy Weill, who is credited and blamed with creating the modern megabank at Citi. After the financial crisis destroyed or hobbled many big banks, bringing Citi to the brink of failure and forcing it to drastically cut back its size and operations,
Miller, who worked for Weill at Travelers Group and Citi, was not very impressed Wednesday with his change of heart.
"Sandy's confusing two things. He's confusing his bad management decisions from an underlying strategy," she said.
Miller, who last year
Her remarks about big banks were less stinging than those of Sallie Krawcheck, a former chief financial officer at Citigroup and global head of wealth management at Bank of America (BAC), in the June issue of the Harvard Business Review. Large banks are still too complex and still too prone to take undue risks,
"Boards need simple and commonsense — but powerful — tools to cut through the complexity and push management behavior in the direction of responsible risk taking," she wrote.