Public interest and lobbies in reforming banking regulation: three tales of ring fencing

Abstract

After the 2008 Financial Meltdown, the need to reconsider the separation between commercial banking and other financial risky activities—ring fencing—in order to mitigate systemic risks and to address the too big to fail problems was publicly recognized both in the USA and in Europe. In spite of this widespread demand for structural banking regulation reform, the ring-fencing proposals—the Volcker Rule in the USA Dodd-Frank Act, the Vickers Report in the UK, the Liikanen Report in the European Union—are still in their infancy. How to explain the difficulties in enacting structural banking regulation? This article shows how the path of the banking reforms can be analysed, highlighting the potential role of the public demand for a safe and sound banking system on the one side and the possible influence of the banking lobbies towards soft and light touch rules on the other side. The final outcome is represented by three different stories of how difficult is to reintroduce ring-fencing regulation in the Western countries.