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In 1969, then-Citibank CEO Walter Wriston tried to radically upend more than a hundred years of banking law by offering to buy the large insurance company, the Chubb Corporation. He did so by using a loophole in banking law that allowed banks to form a holding company and diversify into non-banking industries. Such a purchase would entangle banking and commerce in a manner traditionally prohibited by the rules establishing the national banking system in the 1960s, and reinforced by the Glass-Steagall Act in the 1930s. And it was utterly shocking to the political establishment, from bank regulators all the way up to President Richard Nixon.
Citibank’s move was part of a wave of big banks and conglomerates, which were an early type of private equity fund, trying to break this barrier, and use the special government guarantees for cheap credit as a competitive advantage over industrial firms in the real economy. Smaller banks were unhappy, as were many businesses, about what Wriston was doing. Still, the banks had an immensely powerful lobby. Yet over the course of the next two years, populist Banking Committee Chair Democrat Wright Patman, and his allies in business, at Federal regulatory agencies and in the Nixon administration, fought back.