Can the Plight of the European Banking Structural Reforms Be a Blessing in Disguise?

European Business Organization Law Review (Forthcoming)

University of Luxembourg Law Working Paper No. 2019-012

46 Pages Posted: 31 May 2019 Last revised: 8 Jan 2020

See all articles by Hossein Nabilou

Hossein Nabilou

University of Amsterdam, Asmterdam Law School; The International Institute for the Unification of Private Law (UNIDROIT)

Date Written: May 8, 2019

Abstract

One of the problems perceived to be at the heart of the global financial crisis was an amalgamation of various commercial and investment banking activities under one entity, as well as the interconnectedness of the banking entities with other financial institutions, investment funds, and the shadow banking system. This paper focuses on various measures that aim to structurally separate the banking entities and their core functions from riskier financial activities such as (proprietary) trading or investments in alternative investment funds. Although banking structural reforms in the EU, UK, and the US have taken different forms, their common denominator is the separation of core banking functions from certain trading or securities market activities. Having reviewed the arguments for and against banking structural reforms and their varieties in major jurisdictions, including the EU, UK, US, France, and Germany, the paper argues that a more nuanced approach to introducing such measures at the EU level is warranted. Given the different market structures across the Atlantic and the lack of conclusive evidence on the beneficial impact of banking structural reforms, the paper concludes that the withdrawal of the banking structural reforms proposal by the European Commission has been a prudent move. It seems that in the absence of concrete evidence, experimenting with structural reforms at the Member-State level would be less costly and would provide for opportunities for learning from smaller experiments that could pave the way for a more optimal approach to introducing banking structural reforms at the European level in the future.

Keywords: Banking structural reforms, Volcker Rule, subsidiarization, ring-fencing, Vickers Report, Liikanen Report, interconnectedness, commercial banking, investment banking

JEL Classification: F3, G1, G2, G3, K2, N2

Suggested Citation

Nabilou, Hossein, Can the Plight of the European Banking Structural Reforms Be a Blessing in Disguise? (May 8, 2019). European Business Organization Law Review (Forthcoming), University of Luxembourg Law Working Paper No. 2019-012, Available at SSRN: https://ssrn.com/abstract=3384774 or http://dx.doi.org/10.2139/ssrn.3384774

Hossein Nabilou (Contact Author)

University of Amsterdam, Asmterdam Law School ( email )

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Netherlands

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