Do We Need a Separate Banking System? An Assessment

25 Pages Posted: 15 Mar 2013

See all articles by Gunnar Lang

Gunnar Lang

ZEW

Michael Schröder

ZEW – Leibniz Centre for European Economic Research - International Finance and Financial Management

Date Written: 2013

Abstract

Motivated by the current discussion on different separate banking systems, we provide an overview of the different systems, question them and outline their effect on systemic stability and the German banking sector. The results show that the various separate banking systems only play a minor role in reducing and limiting systemic risk. They only marginally contribute to solving conflicts of interest and can even be detrimental to banking business diversification. A separate banking system could, however, facilitate banking supervision by reducing the banking system’s complexity. Furthermore, credible threats to not support investment banks with federal resources in times of crisis could lead to a more adequate incentives structure of suppliers of equity and outside capital. More efficient measures to further reduce systemic risk in the financial sector should, however, use different levers, such as additional minimum regulatory capital requirements.

Keywords: Banking Regulation, Commercial and Investment Banking, Financial Crises

JEL Classification: G01, G18, G24

Suggested Citation

Lang, Gunnar and Schröder, Michael, Do We Need a Separate Banking System? An Assessment (2013). ZEW - Centre for European Economic Research Discussion Paper No. 13-011, Available at SSRN: https://ssrn.com/abstract=2233450 or http://dx.doi.org/10.2139/ssrn.2233450

Gunnar Lang (Contact Author)

ZEW ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Michael Schröder

ZEW – Leibniz Centre for European Economic Research - International Finance and Financial Management ( email )

L 7,1
P.O. Box 10 34 43
D-68034 Mannheim
Germany
+49 621 1235 368 (Phone)
+49 621 1235 223 (Fax)

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