Making Banks Safer : Can Volcker and Vickers Do it?

Author/Editor: Julian T. S. Chow ; Jay Surti
Publication Date: October 01, 2011
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: This paper assesses proposals to redefine the scope of activities of systemically important financial institutions. Alongside reform of prudential regulation and oversight, these have been offered as solutions to the too-important-to-fail problem. It is argued that while the more radical of these proposals such as narrow utility banking do not adequately address key policy objectives, two concrete policy measures - the Volcker Rule in the United States and retail ring-fencing in the United Kingdom - are more promising while still entailing significant implementation challenges. A risk factor common to all the measures is the potential for activities identified as too risky for retail banks to migrate to the unregulated parts of the financial system. Since this could lead to accumulation of systemic risk if left unchecked, it appears unlikely that any structural engineering will lessen the policing burden on prudential authorities and on the banks.
Series: Working Paper No. 11/236
Subject(s): Bank supervision | Banking | Banks | Commercial banks | Risk management

Author's Keyword(s): Banks | Business Models | Systemic Risk
Publication Date: October 01, 2011
ISBN/ISSN: 9781463922023/1018-5941 Format: Paper
Stock No: WPIEA2011236 Pages: 34
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