Ring Fencing Volcker's Rule? The Liikanen Report and Justifications for Ring Fencing and Separate Legal Entities Revisited

Abstract

The predecessor paper to this publication, “Volcker/Vickers Hybrid”: The Liikanen Report and Justifications For Ring Fencing and Separate Legal Entities, considered the merits, objectives and cost-benefit attributes of respective models associated with the Vickers Report, Liikanen Report and Volckers Rule – by way of reference to the degree of separation of legal entities or banking activities involved, as well as whether an outright ban or prohibition on proprietary trading is involved.

This paper is aimed at highlighting why ring fencing not only presents a more feasible and cost effective option to other models, but also why its degree of flexibility provides the more appropriate balance in a financial environment whose trend is increasingly inclined towards conglomeration.

Keywords: Vickers Report, Volcker’s Rule, Liikanen Report, ring fencing, cross-sector services’ risks, liquidity risks, systemic risks, capital requirements, leverage ratios