Bill Gross: Banks Must Do These 2 Things Now

PIMCO chief Bill Gross came out in support of a banking system that segregated investment banking and retail banking operations. He also called for U.S. banks to take steps to better capitalize themselves.

Referring to the MG Global (NYSE:MF) debacle Gross said, “do we have a better example today than MF Global in terms of the mingling of those two particular aspects of capital allocation.” MF Global (NYSE:MF), a futures broker, recently filed for bankruptcy after it failed to put itself up for sale. Also, the broker failed to protect customer accounts by keeping them separate from its own funds.

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“Wall Street sort of lost its way, in that investment banking became a function not of allocating capital properly, but levering capital and levering the returns on capital as opposed to transferring capital to productive industries,” Gross said. He was speaking on a panel shared with Liz Ann Sonders, chief investment strategist for Charles Schwab.

Commenting on the Greek crisis, Gross said that default by Greece was only a matter of time, and the main question was its membership in the euro.

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