Global Financial Strategy

Search the site   >>Advanced search
First for financial regulatory news and views
HOME   |   REGISTER   |   SUBSCRIBE   |   NEWS   |   ANALYSIS   |   INTERVIEWS & FEATURES   |   EVENTS   |   MUTTERS   |   JOBS   |   MY ACCOUNT
EUROPE   |    US & CANADA   |    ASIA PACIFIC   |    MIDDLE EAST & AFRICA   |    LATIN AMERICA & CARIBBEAN   |    OFFSHORE   |    SINGAPORE   |    HONG KONG
TRADING   |    CASINO MARKET   |    BANKING   |    INSURANCE   |    FINANCIAL REPORTING   |    TAXATION   |    MACROECONOMIC   |    PROFILES   |   CONTACT   |   
  • MF Global spoke of 'strong' finances
  • EC: No corp gov powers for ESAs
  • FSA appoints senior investment bank adviser
  • GFS has now closed
  • Czechs join UK on fiscal compact sidelines
  • Davos stalemate on EU's IMF funds
  • Tucker: Resolution regime 'top priority'
  • Saudi Arabia increases central bank role
  • FSB urges Canada for one securities regulator
  • CFTC set for committee to scrutinise HFT
  • Fitch downgrades Belgian banks
  • What corruption really costs
  • UK FSA pushes for Mifid II rethink on OTCs
  • Shanghai boosts global financial status
  • Canada aligns credit rating rules with EU
  • Bowles blasts lack of women at ECB
  • Sarkozy to introduce French FTT in August
  • Barnier warns on further bonus reforms
GFS LinkedIn
GFS Facebook
GFS Twitter
GFS RSS feed
You must be logged in to use this function.


Ringing the changes: An EU-wide ring-fence?

Wednesday 14 December 2011 – by Karina Whalley & Andrew Hickley


As the UK considers moving towards a separation of investment and retail banking activities, European commissioner Michel Barnier has announced he is setting up a committee to look at applying this banking structure across Europe. Global Financial Strategy investigates the viability of such a structure.

Viral Acharya, an economics professor at New York University, says ring-fencing requirements are not the priority tool for preventing another financial crisis and should be looked at as part of a group of rules.

He said: “I have mixed feelings about it [ring-fencing]. They should keep reforms as a package rather than [looking at them] one by one. Sometimes reforms overall make sense even if for one individual thing you could argue this may or may not be the thing.”

Acharya, who is also a researcher at think tank Centre for Economic Policy Research praised the UK for focusing on “raising the overall level of capital standards” which he says is the “more important step overall”.

“Even commercial banks have got into trouble, not just in this crisis but in the past,” he said.

“So in that sense, the ring-fencing is not the first and foremost tool because even if you ring-fence you need to ensure commercial banks are capitalised and making good loans,” Acharya added.

Related articles:
BBA signals defeat on bank ring-fencing
UK’s business sec calls for ring-fence proof
Intermediaries want UK bank ring-fencing
RBS: Ring-fencing will increase risks
Negative pressures on UK banks from ICB

“The idea that you want to save the commercial banking from some of the riskier activities it has some merit but I would just put precautionary wind on this whole approach.”

British Bankers’ Association executive director Paul Chisnall agrees with this view and cited an Adam Smith Institute paper saying ring-fencing is based on a misdiagnosis.

He told Global Financial Strategy: “The idea that you have to separate off investment banking services looks unusual when you bear in mind that most of the financial crisis failures in the UK actually were a result of retail and commercial lending not as a result of investment banking.

“We don’t think it is related to the financial crisis and we are surprised Europe would be looking at this,” Chisnall added.

The BBA head quoted from a European Central Bank report and from the European Banking Authority, which announced last year that universal banking is seen as a strength rather than a weakness as evidenced by the bank stress tests.

From the ECB’s findings, “experience shows that universal banks have been better placed to maintain credit lines than the more narrowly focused banks”, said Chisnall.


Article pages: |   1  |  2  |  3  |  4  |  5  |



WHAT DO YOU THINK?
 
Name:
   
Email:
   
Comment:
   
Post as Anonymous
  Display name
   
Please, enter security code
   
 

No comments yet.
Login Register Most read Most commented
Username

Password

>> Forgotten your password?
>> Sign Up  

GFS is pleased to offer you a two-week free trial. You will receive a daily email bulletin of the latest regulatory news and analysis and a weekly email round-up. Please complete the free trial form. You will also receive full access to our online site.

EDITOR’S CHOICE

  • Diamond warns against ‘Balkanisation’
  • ABI: UK insurers must keep EU links
  • EU Parliament site hit by hacktivists
  • George Soros: New year, same crisis
  • FSB: Swiss regulator needs more teeth
  • OCC: Deriv fears are an overreaction
  • ‘Major wave’ of Solvency II drafts in May
  • IMF paper urges Aus bank capital boost
  • BoE: Limit bonuses to boost bank capital
  • 2012 vision: Increased regulatory exposure looms
  • Barnier offers hope to NYSE/Boerse
  • Esma rushes short selling consultation
  • Bowles re-elected as Econ chair
  • Hoogervorst hints at accounting slowdown
  • Asia in the year of the dragon
  • Barnier: FTT will not be forced on UK
INTERVIEWS & FEATURES

STRAW POLL

Will markets in 2012 have a tougher time than 2011?

Yes

No

Don’t know

View results

FIND A REGION
 
Global Financial Strategy - [email protected] | Home | Legal | Contact design by SDV