Making Banks Safer: Can Volcker and Vickers Do it?

October 1, 2011

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Format: Chicago

Julian T Chow, and Jay Surti. Making Banks Safer: Can Volcker and Vickers Do it?, (USA: International Monetary Fund, 2011) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper assesses proposals to redefine the scope of activities of systemically important financial institutions. Alongside reform of prudential regulation and oversight, these have been offered as solutions to the too-important-to-fail problem. It is argued that while the more radical of these proposals such as narrow utility banking do not adequately address key policy objectives, two concrete policy measures - the Volcker Rule in the United States and retail ring-fencing in the United Kingdom - are more promising while still entailing significant implementation challenges. A risk factor common to all the measures is the potential for activities identified as too risky for retail banks to migrate to the unregulated parts of the financial system. Since this could lead to accumulation of systemic risk if left unchecked, it appears unlikely that any structural engineering will lessen the policing burden on prudential authorities and on the banks.

Subject: Banking, Commercial banks, Credit, Financial institutions, Financial sector policy and analysis, Financial services, Investment banking, Money, Securities, Shadow banking, Systemic risk

Keywords: Asia and Pacific, Bank management, Banking group, Banks, Business Models, Commercial banks, Credit, Europe, Global, Investment banking, Proprietary trading, Ring-fenced bank, Securities, Systemic Risk, Utility bank, WP

Publication Details

Pages:

34
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/236
Stock No:

WPIEA2011236
ISBN:

9781463922023
ISSN:

1018-5941

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