Shrinking the nation’s biggest banks

Vikram Pandit’s reign as Citigroup CEO ended Tuesday after what may have been the roughest five years for any Citi boss. Mr. Pandit took over in 2007 on the eve of an epochal financial crisis, which was triggered in part by over-investment in mortgages by Citi and others. Citi survived only with the help of federal aid, including $45 billion in capital and a U.S. backstop for $301 billion worth of toxic assets.

Taxpayers eventually recouped the aid, plus a profit. But perhaps more than any other institution, Citi — the original financial “supermarket” — epitomized the dilemma of “too big to fail.” The crowning irony was the recent suggestion by Sanford Weill — who first expanded Citi’s business to encompass investment banking and other risky activities — that banks “be broken up so that the taxpayer will never be at risk, the depositors won’t be at risk, the leverage of the banks will be something reasonable.”

Mr. Weill was jumping aboard a bandwagon already occupied by former Federal Reserve chairman Paul Volcker and members of Congress from both parties. But the idea has not fully taken hold….

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