Reed reviewed this history in an insightful keynote address at an event co-sponsored by Better Markets on the occasion of the 10th anniversary of the Dodd Frank Act on July 21, 2020, which also featured former President Obama and other luminaries. Reed’s remarks are available here.

The repeal of Glass Steagall in 1999 ushered in the supersizing of already too-big-to-fail banks like Citigroup and greatly contributed to the global financial crash of 2008, as detailed in this Fact Sheet.  Citigroup was at the core of causing and spreading that financial crash.  It was the recipient of one of the largest government bailouts in history and was the only major bank not to repay the TARP money it received (see “Wall Street’s Six Biggest Bailed-Out Banks,” Better Markets, April 9, 2019, n. 80 and accompanying text).

After that crash, Reed was the only senior executive of a too-big-to-fail bank to genuinely reflect on the financial crash, its causes, and his role in it.  After doing so, he concluded that the arguments for and claimed benefits of repealing Glass Steagall — and for the combination of traditional and investment banking — lacked merit.  More remarkable, he broke the Wall Street code of silence whereby Wall Street executives never admitted mistakes, never took responsibly, and never seriously discussed how to change the industry if it threatened their profits or, most importantly, their bonuses.

As early as April of 2008 (shortly after the collapse of the Bear Stearns investment bank), Reed told a reporter from the Financial Times that the merger of Citibank with Traveler’s Group that create Citigroup had been a mistake, saying:

“The stockholders have not benefited; the employees certainly have not benefited, and I don’t think the customers have benefited because our franchises are weaker than they have been.”

In October of 2009 Reed wrote a letter to the editor of The New York Times supporting Paul Volcker’s push for regulations that would separate deposit taking institutions from those that deal primarily in capital markets (which would later be included, in modified form, in the Dodd Frank Act in a provision known as the “Volcker Rule.”)

In November 2009, Reed went much further. In an interview with Bloomberg he apologized for his role in creating the conditions that enabled the 2008 financial crisis and agreed that the major Wall Street banks are too big to fail. Reed said that Congress’ overhaul of the US financial system should ban deposit taking institutions from engaging in equities and fixed-income trading, calling for the reinstating the principal provisions of Glass-Steagall.

On February 4, 2010, Reed testified before the Senate Banking Committee on the implications of the Volcker Rule for financial stability. Famously, Reed told the committee that the merger of Citi and the Travelers Group had “created a monster.”  Reed testified that, based on his experience, the corporate culture that thrives in firms operating in capital markets, like Travelers did with Salomon Brothers, should not be allowed at depository institutions and that the banking and financial systems would be stronger if those functions were separated.

On March 24, 2010, Reed was interviewed by the Financial Crisis Inquiry Commission (FCIC) and was asked to expand on his remarks to the Senate Banking Committee. Reed explains that two major cultural shifts transformed Citi after the merger. First, he noted that, throughout the 1990s, capital markets activities became much more important and shareholders became increasingly focused on stock price as a metric for measuring executive performance. Reed stated his belief that this shifted the focus within Citi and other traditional banks away from serving customers and towards the reckless pursuit of profit.

Second, traders at investment banks, like Salomon Brothers, introduced a risk-seeking attitude and over reliance on quantitative risk assessments, which were highly dependent on assumptions and projections by those very same risk-seeking investment bankers.  Unsurprisingly, those risk assessments were consistently overly optimistic to a material degree, compounded by traders increasing their exposure to supposedly safe AAA rated assets.  Regulators then deferred to banks’ risk assessments, which enabled the industry to de-capitalize itself.  As Reed stated:

“I think [the regulators] probably made the mistake of taking a look at what is, quote, called ‘risk-adjusted capital,’ end quote and, since the securities were, in theory, highly rated, they presumably didn’t think that they attracted much in the way of capital requirements.  This was bad logic.”

Reed continued to speak candidly about the need for financial reform and the financial industry’s mistakes. In 2012 he spoke at length about the political processes that lead to the repeal Glass-Steagall. Reed describes an industry that had become absolutely convinced that Glass-Steagall was either unnecessary or actively harmful, failing completely to seriously consider the risks that would inevitably be created by combining gigantic traditional banks with very large investment banks.

In a November 2015 Op Ed published by the Financial Times, Reed rejected the concept of universal banking, saying:

“I think the lessons of Glass-Steagall and its repeal suggest that the universal banking model is inherently unstable and unworkable. No amount of restructuring, management change or regulation is ever likely to change that.”