Universal Banking and the Return of 'Glass-Steagall'

Abstract

This research considers the different approaches to ‘banking’ in different legal systems, and the ways in which different jurisdictions have sought to deal with crises from time to time. Different arguments which academics have considered along the years, both in favor as well as against the adoption of ‘universal banking’ are analyzed.

This study argues that different jurisdictions have developed in different manners, and therefore each systems requires a different approach to its banking sector, particularly in light of the different strengths of capital markets in different jurisdictions. Jurisdictions with weak capital markets have historically been better geared to adopt a system based upon ‘Universal Banking’ (as against those countries having strong capital markets).

In recent years, both the United States of America, as well as, the United Kingdom have identified the comingling of ‘deposits’ with ‘securities activities’ as having caused systemic risks leading up to the global financial crisis. This research therefore looks into the different banking systems considered whilst seeking to carry out the necessary reforms in these jurisdictions, whilst concluding that an outright separation of retail banking from investment banking should not have been easily discarded.

Keywords: capital markets, commercial banking, investment banking, Glass-Steagall Act, retail banking, retail ring-fence, universal banking , Volcker rule

JEL Classification: K20, K22, K23