The Ring Fencing Of A Bank

There are various categories of banking; these include retail banking, directly dealing with small businesses and persons. Commercial and Corporate banking which offers services to medium and large businesses (Koch & MacDonald 2010). Private banking, deals with individuals, offering them one on one service. The last category is investment banking. These help clients to raise capital and often invest in financial markets. Most global banking institutions provide all these services combined. With all these institutions in existence within the same localities and offering similar services, there is a need to regulate the industry so as to protect the consumer and provide fair working environment for all banks (Du & Girma, 2011).

In 2008, when the financial crisis occurred, millions of Americans were left without jobs and trillions of dollars of wealth was lost wealth. To make sure the Great Recession would not happen again, President Barrack Obama put into effect the Dodd- Frank Act. With the help of this law, banks will not be able to take irresponsible risks that had negative effects on the American people. Furthermore, with the Volcker Rule embedded into the act, it will ensure that banks are no longer allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their

Morrison suggests that government should try to make regulations that can make TBTF policy effective rather than, try to end the policy, which is impossible. Morrison discusses the role of the policy in designing suitable capital regulations, in the restriction of bank scope and in institutional design. The author argues that financial institutions receive help from taxpayers and government because regulatory authorities believe that its failure would have severe effects on the country’s economy.

Dodd-Frank forced banks to increase reserves, tie up more of their assets in cash and government securities, and subjected banks to increased regulations.3 As part of the Dodd-Frank act, the Volcker rule was intended to stop banks from engaging in speculative investments with money deposited by customers. Dodd-Frank was rolled out in 2010 but the Volcker Rule was delayed by government red tape until 2015. In addition, by 2013 only about forty percent of Dodd-Frank’s rules had been fully

Royal commission into banks: A burden or a necessity The Labor, the Greens, and a few coalition MPs are demanding a Royal commission into the banking and financial services industry to probe a series of scandals involving the financial sector in the recent years. The opposition leader Bill Shorten has vowed to constitute the Royal commission if the Labor government comes to power in the next elections. On the other hand, the ruling coalition has strongly opposed the demand for constituting the commission, stating that enough regulations are already in place and appropriate corrective actions have been initiated against the recent scandals surrounding the banking sector. Mr. Shorten said, the demand for the Royal commission was, “an important

Along with the greater profitability restrictions imposed on banks from the Dodd Frank comes the banks will for greater cost management, meaning job cuts. Already the Banks have begun laying employees off from burdening restrictions leading to this brutal method of retaining necessary capital needed for operations ("Wall Street Journal"). The bigger the bank, the greater resentment they have over this act. Their financial statements will have to retain a greater amount of compliance and transparency as well. Because of the large prominence of “shadow banking” and the concealed balance sheet elements that came along with this practice, the banks now are imposed with greater regulation to prevent these stealthy tactics of borrowing and investing. These restrictions, in my belief, will provide greater protection to the consumer but will also provoke institutions to begin innovating financial instruments to get around barriers, just as they did in the past with interstate banking and early consolidated services even before Glass-Steagalls act. The bankers oppose the act due to their cut in profits. Reduced outlets in revenue from specific revenue generating activities have been capped and larger expenses in order to comply with the new rules have also greatly cut profitability. The same notion is held with brokers. Because of the greater compliance costs served

Andrew Bailey (2013) “The future of UK banking - challenges ahead for promoting a stable sector”. Bank of England [online]. Available from:

Some of the main provisions of the Dodd-Frank Act removed the burden imposed on the taxpayers and are now holding Wall Street accountable for any firm that fails in the future7. In addition, the Volcker Rule has been implemented, in essence this rule prohibits banking institutions to do other activities unconnected to assisting their customers; this provision separates “proprietary trading” (which includes the banks being “allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit”) from the activity of banking

Under this rule, banks are once again limited to the type of trading they can conduct and it prohibits them from trading and speculating activities (Tracy, Ackerman). I tend to side with the critics of this rule and as it hinders a bank’s ability to benefit from available opportunities. Through this provision, we have taken a direction towards the Glass-Steagall Act where banks were forced to separate their investment and commercial segments (Investopedia). Within this provision, it also prevents banks from investing in hedge funds. By eliminating a whole class of investments, I believe this rule is too overpowering without adequate evidence to back up this claim. While some hedge funds have been cited for taking too many risky tactics, there are also a lot of hedge funds who do an exceptional job hedging out risk and eliminating large losses. As we found in our research for our presentation, hedge funds can provide many diversification benefits if properly used and can oftentimes avoid the heavy losses associated with a market collapse. Therefore, I do not believe there is a sound basis to restricting an entire class from banks to choose from. I also agree with House Representative Jeb Hensarling from Texas who argues that these rules should be scrapped in favor of a higher capital requirement (Tracy, Ackerman). I believe this would be an easier policy to implement and less costly to regulate while also allowing banks more freedom to pursue profitable

Three key things need to take place internal controls, strengthen financial reporting, and corporate governance.. For protection of the bank, there needs to be more than one sign on/log in into a system

The proposal currently has nine Republican signatures and nine Democrat, which means that it has enough to clear both the banking panel and the Senate if all Republicans agree with it. There has been some strong opposition again the legislation as Ohio Senator Sherrod Brown says, “it would do little to help working families”. However, Senator Crapo believes that this is the first proposal with a genuine chance of making it to the president. The authors conclude the article with two statements, the first explains that banks with assets between $50-$100 billion would be immediately exempt, and banks between $100-$250 could be exempt after 18 months. The second statement was from an analyst at Evercore ISI saying that he wasn’t sure if these regulation changes would result in cost savings because banks have been viewing them as sunk costs.

The reality of systemic risk made the task of regulating the financial system increasingly complicated, as the crises aren’t contained in one country or market. The extreme inter-dependence between the different agents is the main reason why we need regulation today, as some misconducts can cause a domino effect, affecting markets globally. The structure of the banking system in itself explains this process. In the finance industry, banks borrow money from other banks. If one bank fails, the one who lent the funds in the first place might also follow the same path, creating panic in the markets. The government’s first prerogative is to protect its citizens from these

In this essay I will be addressing the “Too Big To Fail” (TBTF) problem in the current banking system. I will be discussing the risks associated with this policy, and the real problems behind it. I will then examine some solutions that have been proposed to solve the “too big to fail” problem. The policy ‘too big to fail’ refers to the idea that a bank has become so large that its failure could cause a disastrous effect to the rest of the economy, and so the government will provide assistance, in the form of perhaps a bailout/oversee a merger, to prevent this from happening. This is to protect the creditors and allow the bank to continue operating. If a bank does fail then this could cause a domino effect throughout

Investment Banking is now at a crucial junction, where Investment and Commercial Banking are splitting up due to the ring fence which is being built around these two banking areas. As well, the new upcoming regulation, Basel III, will have a huge impact in the investment banks, with higher liquidity and capital requirements, in order to increase solvency and stability in financial industries.

Extensive research has determined that the banking industry is in an unstable state. The industry’s profits have