Banks

Breaking up big banks a bad idea, expert says

Should we reinstate Glass-Steagall?
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Should we reinstate Glass-Steagall?

Automatically calling for the breakup of big banks is a bad idea, banking expert Rodgin Cohen said Tuesday.

Both the Democrats and Republicans have made revisiting Glass-Steagall, which was designed to prevent big bank "supermarkets," part of their platforms. The Depression-era legislation was partially repealed in 1999.

"You would be chartering a very different course. You would be chartering a course where you are, for artificial reasons, eliminating the institutions which help fuel the American economy," Cohen, senior chairman at Sullivan & Cromwell, said in an interview with CNBC's "Closing Bell."

Cohen has done many major bank deals and supported the repeal of Glass-Steagall at the time.

If there is a call for busting up the banks, "you need to have a reason for it and a plan if you do," he added.

At the Democratic National Convention on Monday night, both Massachusetts Sen. Elizabeth Warren and Vermont Sen. Bernie Sanders called for the breaking up of major financial institutions on Wall Street.

The Democratic platform calls for an "updated and modernized version of Glass-Steagall," while the Republican platform calls for the reinstatement of the 1933 law.

Some have blamed the law's partial repeal for the financial crisis. However, Cohen said that had nothing to do with it.

"There is not a single major failure that occurred because of the limited repeal of Glass-Steagall," he said. "To attribute the financial crisis to this limited amendment of Glass-Steagall, there's just not a correlation."

— CNBC's Patti Domm contributed to this report.