'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.

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