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Volcker rule, ring-fencing or separation of bank activities – Comparison of structural reform acts around the world

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Abstract

One of the key issues in the on-going overhaul of the global financial system is the structural reform of banking systems. Legislatures in different states, for example, the United States, France, Germany and the United Kingdom, have all taken measures to protect individual depositors’ assets against losses from risky bank activities. On 29 January 2014, the European Commission joined the transnational effort by publishing its own proposal on the subject. This contribution shows how the same economic goal is implemented through different approaches by legislatures across the globe. It also analyses how this legal diversity will affect the level playing field in the competition for banking services and the consistency of global financial regulation.

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Notes and References

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  • The entry into force was originally planned for 21 July 2012, see 12 U.S.C. § 1851(c)(B). It has however been postponed for 2 years, 12 C.F.R § 225.181. For background, see Federal Reserve. (2011) Conformance period for entities engaged in prohibited proprietary trading or private equity or hedge fund activities. 76 Fed. Reg. 8276. 14 February.

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  • Sec. 13 Bank Companies Holding Act=12 U.S.C. § 1851.

  • See 12 U.S.C. § 1851(h)(1).

  • See the permitted activities enumerated in 12 U.S.C. § 1851(d)(1)(A)-(G).

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  • See 12 U.S.C. § 1851(h)(4) and (6).

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  • Art. 511-48-I Code monétaire et financier (French Financial Services Act).

  • § 25f(6) Kreditwesengesetz – KWG (German Banking Act).

  • § 25f(2) Kreditwesengesetz – KWG (German Banking Act).

  • In France, a decree will have to spell out the precise criteria, see Art. 511-47-I Code monétaire et financier (French Financial Services Act). In Germany, the threshold is either total assets in the amount of €100 billion or more, or total assets in the amount of €90 billion or more provided that the trading volume in the last three years was at least 10% of the total assets: § 3(2) 1 Kreditwesengesetz – KWG (German Banking Act).

  • Art. 511-48-II Code monétaire et financier (French Financial Services Act).

  • Art. 511-47-I 2 para. 7 Code monétaire et financier (French Financial Services Act).

  • Art. 511-48-I para. 7 Code monétaire et financier (French Financial Services Act).

  • Art. 511-48-I para. 8 Code monétaire et financier (French Financial Services Act).

  • § 25f(3) Kreditwesengesetz – KWG (German Banking Act).

  • See Art. 387 ss. Capital Requirements Regulation – CRR (Regulation (EU) No 575/2013 of 26 June 2013 on prudential requirements for credit institutions and investment firms, OJEU L 176/1).

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  • Sec. 142A-142J FSMA.

  • Sec. 142A(1) and 142B(1), (2) FSMA.

  • Sec. 142D(1), (2) FSMA.

  • Art. 5 et seq. Financial Services and Markets Act (Excluded Activities and Prohibitions) Order.

  • Sec. 142H(4)(b)(i) FSMA.

  • Sec. 142H(4)(c) FSMA.

  • Sec. 142H(5)(a) FSMA.

  • See sec. 142Y(1) FSMA. On the exercise of this power, see the Draft Banking Reform (Loss Absorbency Requirements) Order.

  • Sec. 13 Financial Services (Banking Reform) Act 2013.

  • The Act merely allows the Treasury to exempt certain banks if it is likely that this has no significant adverse effects on the financial system’s function to provide core banking services, Sec. 142A(2)(b) and (3) FSMA. The Treasury has used its power to exempt institutions for which accepting deposits is not a core activity or which have deposits of equal or less than £25 billion, Financial Services and Markets Act 2000 (Ring-fenced Bodies and Core Activities) Order 2014.

  • HM Treasury (2013) Banking reform: Draft secondary legislation, 17 July, p. 18.

  • Draft Financial Services and Markets Act 2000 (Excluded Activities and Prohibitions) Order, sec. 1(3) ‘financial institution exposure’ and sec. 8(1).

  • European Commission. Proposal for a Regulation of the European Parliament and of the Council on structural measures improving the resilience of EU credit institutions, COM(2014), 43 final.

  • Art. 6(1)(a), (b)(i), (ii) COM(2014), 43 final.

  • The EU proposal adopts a threshold of €30 billion of total assets combined with the condition that the trading activities amounts to 10% of the assets (or €70 billion), see Art. 3(1)(b) COM(2014), 43 final.

  • Art. 3(1)(a) COM(2014), 43 final.

  • Art. 6(2) COM(2014), 43 final.

  • Art. 9, 13 COM(2014), 43 final.

  • Art. 13(1) COM(2014), 43 final.

  • Art. 13(5) COM(2014), 43 final.

  • See Art. 13(3) COM(2014), 43 final.

  • Art. 13(4) COM(2014), 43 final.

  • Art. 14 COM(2014), 43 final.

  • Art. 13(7) COM(2014), 43 final.

  • Art. 13(8) COM(2014), 43 final.

  • Art. 13(10) COM(2014), 43 final.

  • Art. 21 COM(2014), 43 final.

  • Art. 9(2)(a)-(h) COM(2014), 43 final.

  • Art. 10(5) COM(2014), 43 final.

  • Art. 117–133 de la Loi relative au statut et au contrôle des établissements de crédit du 25 avril 2014, Moniteur belge du 7 mai 2014, p. 36794.

  • Viñals, J., Pazarbasioglu, C., Surti, J., Narain, A., Erbenova, M. and Chow, J. (2013) Creating a Safer Financial System: Will the Volcker, Vickers, and Liikanen Structural Measures Help?. IMF Discussion Note. SDN/13/4. 14 May, https://www.imf.org/external/pubs/ft/sdn/2013/sdn1304.pdf.

  • Blundell-Wignall, A., Atkinson, P. and Roulet, C. (2014) Bank business models and the separation issue. OECD Journal: Financial Market Trends, 5(4), 2013/2 1.

  • Gambacorta, L. and Van Rixtel, A. (2013) Structural Bank Regulation Initiatives: Approaches and Implications. BIS Working Paper No 412, http://www.bis.org/publ/work412.pdf.

  • See 12 U.S.C. § 1851 (‘banking entity’); Art. L511-41-I Code monétaire et financier (‘etablissement de crédit et sociétés de financement’); § 3(2) 1 Kreditwesengesetz (‘CRR-Kreditinstitute’).

  • See, for example, in Germany § 33(1) 1 No. 6 Kreditwesengesetz.

  • See, for example, Art. 3(1)(a) COM(2014) 120 final.

  • See Art. L511-41-I Code monétaire et financier.

  • Art. 3(1)(b)(iii) COM(2014) 120 final and p. 7 there.

  • Art. 4(1)(a) COM(2014) 120 final.

  • Financial Stability Board (2011) Key attributes of effective resolution regimes for financial institutions, updated version 15 October 2014, http://www.financialstabilityboard.org/2014/10/r_141015.

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  1. Adenauerallee 24-42, 53113 Bonn, Germany

    Matthias Lehmann

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Lehmann, M. Volcker rule, ring-fencing or separation of bank activities – Comparison of structural reform acts around the world. J Bank Regul 17, 176–187 (2016). https://doi.org/10.1057/jbr.2015.3

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