Roundtable on the Future Structure of Banking
As a reaction to the 2007/2008 financial crisis, various national and supranational government bodies commissioned high-profile expert groups to propose amendments to the regulatory framework for the banking industry. Despite differences in their analyses, the U.S. PERAB under Paul Volcker, the U.K. ICB under John Vickers, and the E.U. High level experts group under Erkki Liikanen were united in their aim to improve the organizational structure of banks. The proposals aim at limiting spillovers from proprietary trading to customer business (retail or/and commercial) and at reducing complexity and intragroup integration in order to make failing institutions resolvable over the proverbial weekend without resorting to taxpayer-funded bail-outs. The ultimate policy recommendations differ quite significantly and reach from the outright separation of proprietary trading from other banking activities (Volcker-rule), to either ring-fencing the banks’ (domestic) retail customer unit (Vickers) or its trading unit (Liikanen).
In the meantime, lawmakers in important jurisdictions, as for instance the U.S., the U.K., Germany and France, promulgated legislation that seeks to translate the various groups’ policy recommendations into operational regulation. In July, the EU Commission closed a consultation on the structural reform of the banking sector and has recently proposed specific legislation. The initiatives to implement regulatory policy in a stringent and foreseeable manner face a twofold challenge. On the one hand, regulators have to design rules that indeed cover the relevant banking activities and do not give rise to natural evasive movements of an industry which is famously dynamic and innovative in structuring its activities. On the other hand, regulators have to be careful in writing reasonably precise laws that avoid collateral damages, i.e. do not hamper desirable organizational structures or lead to other unintended and undesirable latent consequences that in fact heighten the financial system’s fragility.
On the eve of EU legislative action, this roundtable seeks to revisit the policy rationales behind the above mentioned expert recommendations and explore the prospects of achieving them through specific implementing acts in selected jurisdictions. It does so by debating the economic soundness of the proposals and the expedience of their legal implementations. To that end it brings together academics, regulators and industry representatives.