In an interview with Bloomberg, Barclays CEO Bob Diamond said that regulators pushing for large banks to break up are misguided, because the universal business model is a “diversifier of risk.”
That's a pretty epic fall for a business model that was once supposed to create revenue generation multipliers, cut costs and deliver outperformance to shareholders.
But that experiment has largely failed, the prime example being Citi.
And so Diamond is left with the diversification argument.
But what kind of risk is Diamond talking about diversifying?
If he means earnings risk, he's got a strong point. Having lots of different businesses under one roof decreases dependence on and exposure to any one business.
The problem is that regulators are more interested in systemic risk than earnings risk.
And the argument that the universal banking model decreases systemic risk is an almost impossible argument to make.
