Abstract
The concept of separation of commercial and investment banking has been the subject of debate since the great depression of the 1930’s. The US Congress saw the need to separate the two activities through the enactment of the Glass-Steagall Act of 1933. This argument resurfaced after the subprime crisis of 2007-2008 has resulted in the loss of approximately $1.1 trillion, with a dozen and a half large universal banks responsible for half of the losses (Wilmarth Jr, 2009). The global financial meltdown was subverted through the efforts of governments and central banks which subscribed $9 trillion for the support of institutions. The underpinning factor of this crisis was the amount of risk undertaken by too large to fail institutions with funds belonging to individuals (Blundell-Wignall, Atkinson and Roulet, 2014). The argument for the split-up of commercial and investment banking is not clear cut, however the most prominent argument suggest that the separation is necessary to ensure the separation of and protection of customer pledges from market risks (de Larosiere, 2012) ensuring that taxpayer funds are not used to avert risky investments.
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