„Volcker/Vickers hybrid“?: The Liikanen Report and justifications for ring fencing and separate legal entities

Ojo, Marianne (2013): „Volcker/Vickers hybrid“?: The Liikanen Report and justifications for ring fencing and separate legal entities.

Abstract

Whilst some valid and justified arguments have been put forward in favour of ring fencing, that is, constructing a fire-wall between consumer and investment banks, and that such activities can be achieved without re structuring banks into separate legal entities, the Liikanen Report highlights why there is need for such re structuring. As well as considering the merits of ringfencing and the establishment of separate legal activities and entities, this paper aims to highlight why a suitable model aimed at mitigating risks of contagion can to a large extent, be justified on a cost-benefit analysis basis.

Furthermore, the paper ultimately concludes that even though a greater degree of separation of legal entities and activities persist with the model which is referred to as „total separation“, a certain degree of independence between bank activities would also be necessary under ring fencing if its purposes and objectives are to be fulfilled.

• Item Type: MPRA Paper
• Language: English
• Keywords: Vickers Report; Volcker's Rule; Liikanen Report; ring fencing; recovery plans; resolution plans; bail-outs; loss absorption; systemic risks; leverage ratios; liquidity; capital requirements; de-leveraging
• Subjects: E - Macroeconomics and Monetary Economics > E0 - General > E02 - Institutions and the Macroeconomy; K - Law and Economics > K2 - Regulation and Business Law; G - Financial Economics > G2 - Financial Institutions and Services; D - Microeconomics > D0 - General > D02 - Institutions: Design, Formation, Operations, and Impact; G - Financial Economics > G3 - Corporate Finance and Governance; G - Financial Economics > G0 - General > G01 - Financial Crises

References

Daily Telegraph, Paul Volcker: Ring-fencing Banks is Not Enough, <http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9561624/Paul-Volcker-ring-fencing-banks-is-not-enough.html>

IFLR, Banking Sector Reforms, <http://www.iflr.com/Article/3107360/Banking-sector-reform-a-definitive-guide-to-the-latest-developments.html?LS=EMS763204>

IFLR, Why Kay, Volcker Are Wrong About Ring Fencing <http://www.iflr.com/Article/3113446/Banking/Why-Kay-Volcker-are-wrong-about-ringfencing.html>

Varriale G, „Liikanen Poll: Volcker/Vickers Hybrid Wrong For Europe's Banks, 18 September 2012

Varriale G, „FSA Prudential Chief: Why Banks Must Be Ring Fenced“ http://www.iflr.com/Article/3114533/EU/FSA-prudential-chief-why-banks-must-be-ringfenced.html

Vickers Report, The Independent Commission on Banking (ICB), Final Report, Recommendations, September 2011

The Final Report of „The High-Level Expert Group on Reforming the Structure of the EU Banking Sector“ The Liikanen Report (Final Report, 2nd October 2012)

The „Volcker Rule“ , Section 619 of Title VI of the Dodd Frank Act