87 Southern California Law Review 69 (2013)

42 Pages Posted: 6 Mar 2013 Last revised: 4 Jun 2018

Date Written: August 13, 2013


“Ring-fencing” is often touted as a regulatory solution to problems in banking, finance, public utilities, and insurance. However, both the precise meaning of ring-fencing, as well as the nature of the problems that ring-fencing regulation purports to solve, are ill defined. This article examines the functions and conceptual foundations of ring-fencing. In a regulatory context, the term can best be understood as legally deconstructing a firm in order to more optimally reallocate and reduce risk. So utilized, ring-fencing can help to protect certain publicly beneficial activities performed by private-sector firms, as well as to mitigate systemic risk and the too-big-to-fail problem inherent in large financial institutions. If not structured carefully, however, ring-fencing can inadvertently undermine efficiency and externalize costs.

Keywords: ring-fencing, systemic risk, risk management, Volcker Rule

Suggested Citation

Schwarcz, Steven L., Ring-Fencing (August 13, 2013). 87 Southern California Law Review 69 (2013), Available at SSRN: https://ssrn.com/abstract=2228742 or http://dx.doi.org/10.2139/ssrn.2228742

Steven L. Schwarcz (Contact Author)

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States
919-613-7060 (Phone)
919-613-7231 (Fax)

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