Architect of financial super-banks says 'Break 'em up'

Break up the big banks? Yes, that's what Sanford Weill told CNBC in an interview this morning.

Lots of people have called for breaking up the big banks, which have managed easily to swat the proposals away like mosquitoes. But Sandy Weill used to be the CEO of Citigroup (C)  and was one of the foremost promoters of the financial supermarkets that we see today.

When he merged Travelers Group with Citicorp in 1998, he called for the repeal of the Glass-Steagall Act, the Depression-era law that had separated commercial banks from investment banks. The law was enacted to control the speculation that many believed led to the near-collapse of the U.S. banking system after the 1929 stock market crash.

Ultimately, the law was repealed because, as Weill argued, it had become archaic. But many critics have contended the result was bigger financial institutions that took bigger overall risks and destabilized the domestic financial system and the global financial system as well.

Commercial banks take deposits and make loans. Investment banks underwrite stocks and bonds and take much bigger risks. Richard Parsons, the retired CEO of American Express (AXP) and the retired chairman of Citigroup as well, has said the repeal of the law helped create the 2008-09 financial crisis.

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John Reed, who ran Citicorp before the merger with Travelers, has since called for banks and investment banks to be separated.

Even Phillip Purcell, the former CEO of Morgan Stanley (MS), a key ally in Weill's fight to repeal Glass-Steagall, has suggested separation would help stock prices for the financial services industry. 

Sheila Bair, former chairman of the Federal Deposit Insurance Corp., pronounced herself "flabbergasted" by Weill's comments. She has called for banks to be broken up.

Will the banks be broken up? Don't bet on it.

JPMorgan Chase (JPM) CEO Jamie Dimon would surely fight the idea. JPMorgan has built up a huge investment banking business over the years, in part by taking over most of Bear Stearns after its collapse in 2008.

Tim Ryan, CEO of the Securities Industry and Financial Markets Association, said his organization would "vigorously oppose" any measures to go back to the old days. "It doesn't make any sense," he told CNBC.