It’s now generally deemed that the 1998 merger between Citicorp and Travelers Group was a pivotal moment in the current implosion of the nation’s economy. “The combination of Citibank with Salomon Smith Barney under the bright red umbrella of Travelers Insurance was accepted with a regulatory wink and nod by the Federal Reserve until Fed Chairman Alan Greenspan could persuade Congress to make it legal,” Steven Pearlstein wrote in the Washington Post today. “The hurdle was the Glass-Steagall Act, put in place during the Great Depression to prevent another market crash like that of 1929. Now that another market crash has required the government to rescue a commercial bank done in by its investment banking subsidiary, there will certainly be those who wonder whether the New Dealers didn’t have it right all along.”

So how did the nation’s editorial pages cover the merger at the time? Very sympathetically, based on a review of coverage on Nexis.

“Does this mean the country is headed for an era when just a few banking Goliaths are left, all but eliminating consumers’ choices?” Newsday asked in an April 1998 editorial. And might that invite the kind of economic catastrophe that has beset Japan, where unwise loans by a few major banking conglomerates have compounded their country’s economic woes?

Dismal thoughts. The answers are far more encouraging, though: The almost universal response from industry observers, both in and out of the banking business, is that banking bigness is not a trend that lawmakers or regulators should be fighting, but one they should be sensibly accommodating…

Yes, it’s true that there almost certainly will be fewer and bigger banks as the industry evolves. But consumers will continue to have a variety of choices, as smaller banks fill the gaps the big players leave behind. And far from being a bad thing for the soundness of the banking system or the U.S. economy, big banks are most likely to be a good thing: Like an investor diversifying for safety, larger banks will be less vulnerable if they can spread their risks over larger geographical areas or broader ranges of financial products.

A New York Times editorial at the time was upbeat as well:

Congress dithers, so John Reed of Citicorp and Sanford Weill of Travelers Group grandly propose to modernize financial markets on their own. They have announced a $70 billion merger — the biggest in history — that would create the largest financial services company in the world, worth more than $140 billion. If the merger is approved by regulators, Citigroup, as the company will be called, will serve about 100 million customers in 100 countries. In one stroke, Mr. Reed and Mr. Weill will have temporarily demolished the increasingly unnecessary walls built during the Depression to separate commercial banks from investment banks and insurance companies.

Some consumer advocates oppose the merger because, they fear, financial behemoths inevitably threaten ordinary consumers. But one-stop financial shopping could actually protect naive investors. Under current laws such investors can be pulled in contradictory directions by bankers offering retirement accounts, insurance agents offering annuities and securities dealers offering mutual funds. An institution that sells all these products can steer customers toward the product that best serves their needs.

A collapse in the company’s securities and insurance operations could drag down its commercial bank. But that will happen only if Federal regulators fall sound asleep.

And we all know that federal regulators would never fall asleep on the job, so that was never a risk.

The most perversely amusing piece written about the merger came from James Glassman, the oracle who later co-authored the book “Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market.” Here’s an excerpt from his Washington Post editorial of April 13, 1998, which endorsed the Citi-Travelers merger and a number of other mergers taking place during the period.

Thanks to regulations enacted more than 70 years ago and to the incredible political clout of small-town bankers, this country’s banking system has been a balkanized mess. The mergers are making banking more efficient, and that is a good thing. In fact, what would be really good to see is more and bigger mergers…

There are dangers. The mergers make more institutions “too big to fail.” Knowing that regulators won’t close them down in a crisis, bank managers may get reckless in their lending…Certainly, elephants mating can trample the underbrush. But in general, we have little to fear and a great deal to gain when they merge.