Abstract
One of the problems perceived to be at the heart of the global financial crisis was an amalgamation of various commercial and investment banking activities under one entity, as well as the interconnectedness of the banking entities with other financial institutions, investment funds, and the shadow banking system. This paper focuses on various measures that aim to structurally separate the banking entities and their core functions from riskier financial activities such as (proprietary) trading or investments in alternative investment funds. Although banking structural reforms in the EU, UK, and the US have taken different forms, their common denominator is the separation of core banking functions from certain trading or securities market activities. Having reviewed the arguments for and against banking structural reforms and their varieties in major jurisdictions, including the EU, UK, US, France, and Germany, the paper argues that a more nuanced approach to introducing such measures at the EU level is warranted. Given the different market structures across the Atlantic and the lack of conclusive evidence on the beneficial impact of banking structural reforms, the paper concludes that the withdrawal of the banking structural reforms proposal by the European Commission has been a prudent move. It seems that in the absence of concrete evidence, experimenting with structural reforms at the Member-State level would be less costly and would provide for opportunities for learning from smaller experiments that could pave the way for a more optimal approach to introducing banking structural reforms at the European level in the future.
Highlights
The financial market turmoil of the 2007-2009 triggered a process of financial regulatory reforms the effects of which are yet to be fully appreciated
After reviewing the nature of structural reforms and their specific use-cases in banking regulation, this paper has closely investigated the arguments for and against the banking structural reforms and studied the structural reforms initiatives in the US, EU, UK, France, and Germany
Most of the arguments against the universal banking model could - to varying degrees - be used for establishing banking structural reforms and limiting the universal banking model
Summary
The financial market turmoil of the 2007-2009 triggered a process of financial regulatory reforms the effects of which are yet to be fully appreciated. Despite the market forces and private-law mechanisms, it is argued that within 2 years after the passage of the Gramm-Leach-Bliley Act in the US, major commercial banks that took full advantage of this Act to engage in all other non-core banking activates ended up involving in serious corporate financial scandals, including Enron and WorldCom. most of the investment banking units of the Bank Holding Companies (BHCs) involved in the violations such as corrupted equity research, facilitating late trading, and market timing by hedge funds at the expense of the ordinary shareholders of in-house mutual funds, and playing the role of principal and intermediary in corporate actions.[71].
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
