Making Banks Safer: Can Volcker and Vickers Do it?

35 Pages Posted: 18 Oct 2011

See all articles by Julian T.S. Chow

Julian T.S. Chow

International Monetary Fund (IMF)

Jay Surti

International Monetary Fund (IMF)

Date Written: October 2011

Abstract

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.

Keywords: Bank regulations, Bank supervision, Banking, Commercial banks, Fiscal risk, Risk management, Securities markets, United Kingdom, United States

Suggested Citation

Chow, Julian T.S. and Surti, Jay, Making Banks Safer: Can Volcker and Vickers Do it? (October 2011). IMF Working Papers, Vol. , pp. 1-34, 2011. Available at SSRN: https://ssrn.com/abstract=1945623

Julian T.S. Chow (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Jay Surti

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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