Ring-Fencing in Europe

Dr. Konstantin Oppolzer

doi:10.5771/9783748903451

Summary

Bank structural reforms that stipulate the separation of retail and investment banking and that can collectively be referred to as ‘ring-fencing’ have been among the most controversial regulations since the financial crisis. This study explores legal developments in the European Union in this regard as well as national legislation in the United Kingdom, Germany and Switzerland.

The study contributes to the terminology and classification of existing and future ring-fencing initiatives and paints a comprehensive picture of current developments and prospects on an EU level in this respect. It furthermore highlights structural differences in the national approaches of Europe’s three most important financial centres, and casts light on Switzerland’s unique ring-fencing efforts that have been barely recognised internationally.

This study was recognised with the Austrian Award for Insolvency Law.

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Bibliographic data

Copyright year: 2019
ISBN-Print: 978-3-8487-6229-3
ISBN-Online: 978-3-7489-0345-1
Publisher: Nomos, Baden-Baden
Series: Studien zum Bank-, Börsen- und Kapitalmarktrecht
Volume: 75
Language: English
Pages: 342
Product type: Book Titles

Titelei/InhaltsverzeichnisPages 1 - 22 Download chapter (PDF)
List of AbbreviationsPages 23 - 24 Download chapter (PDF)
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1. I. Overview
2. II. Current State of Scientific Research
3. III. Research Problem
4. IV. Research Questions
5. 1. A. Part I
  2. B. Part II
  3. C. The Concept of Ring-Fencing II
6. VI. Methodology
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1. 1. 1. 1. 1. “The entire range of financial services”
      2. 2. Universal banking after ring-fencing
    2. b. Dominance
  2. 1. a. Benefits
    2. 1. 1. Access to the safety net: explicit and implicit subsidies
      2. 2. Risk-taking, trading risks, culture and complexity
2. 1. 1. a. Environment
    2. b. Relationship-based banking
    3. c. Market-based banking
  2. 1. a. Proprietary trading
    2. b. Market making
  3. 1. a. Bigger banks
    2. b. Complexity and interconnectedness
    3. c. Post-crisis response
3. 1. A. Bailouts
  2. B. Bailout decision and too-big-to-fail
  3. C. Implicit subsidies
  4. D. Global systemically important banks (G-SIBs)
  5. E. Bank Size and TBTF
4. 1. A. Structural reform as an umbrella term
  2. B. Ring-fencing as a structural reform: the concept of ring-fencing
  3. 1. 1. 1. Reasons for the adoption of the Glass-Steagall Act
      2. 2. Full separation
      3. 3. Criticism and impact of the Glass-Steagall Act
    2. b. Differences between ring-fencing and full separation
  4. 1. 1. 1. Section 619 Dodd-Frank Act
      2. 2. Activities ban
      3. 3. Criticism
    2. b. Differences between ring-fencing and the activities ban
5. 1. A. The basic rationale of ring-fencing
  2. 1. a. Resolvability
    2. b. Subsidies and moral hazard
    3. c. Complexity and size
    4. d. Culture and competition
  3. C. Differences to recovery and resolution
6. 1. A. Underlying assumption
  2. 1. a. The defensive method
    2. b. The containment method
7. 1. A. Origins of the term “ring-fencing”
  2. 1. a. From public utility companies to securitisations
    2. b. Results
  3. 1. a. Jurisdiction-oriented ring-fencing
    2. b. Activities-oriented ring-fencing
    3. c. Establishing a definition
8. VIII. Results
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1. 1. A. Mandate and structure
  2. 1. a. Outline
    2. b. Costs and benefits
  3. 1. a. Outline
    2. b. Costs and benefits
    3. c. Final proposal
  4. 1. a. Reception by stakeholders
    2. b. Criticism of the Liikanen Report
    3. c. Characterisation and method of ring-fencing
2. 1. 1. a. Importance of a harmonized approach
    2. b. Structure
  2. B. Scope of the draft regulation
  3. 1. a. Prohibitions
    2. b. Discussion
  4. 1. a. Trading activities
    2. b. Review of trading activities
    3. c. Separation procedure
  5. 1. a. Activities restrictions
    2. b. Subgroups
    3. c. Exercise of power
    4. d. Designation
    5. e. Exemption for the United Kingdom
  6. 1. a. Characterisation
    2. b. Implications
    3. c. Reception and criticism
    4. d. Method of ring-fencing
3. 1. A. Introduction
  2. 1. a. Tiers
    2. b. Negative scope
  3. 1. a. Mandatory separation
    2. 1. 1. First step: prohibition of proprietary trading
      2. 2. Second step: exemptions
      3. 3. Third step: identification procedure
    3. c. Results
  4. 1. a. Assessment of other trading activities
    2. b. Results
  5. 1. a. Corporate structure
    2. b. Activity-restrictions
    3. c. Exemption for the United Kingdom
  6. 1. a. Negotiating manifest
    2. b. Watered down
    3. c. Method of ring-fencing
    4. d. Influence of Germany and France
4. 1. A. European Parliament
  2. B. Withdrawal
  3. 1. a. Starting position
    2. b. Legislative options
    3. 1. 1. BRRD
      2. 2. SRMR
      3. 3. Results
5. V. Results and Outlook
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1. 1. 1. a. Importance of the financial centre
    2. b. Number of banks their nature
    3. c. HSBC, Barclays, RBS, Standard Chartered
  2. 1. a. Importance of the financial centre
    2. b. Number of banks and their nature
    3. c. Deutsche Bank
  3. 1. a. Importance of the financial centre
    2. b. Number of banks and their nature
    3. c. UBS and Credit Suisse
  4. 1. a. Importance of the financial centre
    2. b. Number of banks and their nature
    3. c. G-SIBs
2. 1. A. United Kingdom
  2. B. Germany
  3. 1. a. Decision against structural reforms
    2. 1. i. Emergency plan
        ii. Organisational measures to improve general resolvability
      2. 2. Subsidiarity principle
      3. 3. TBTF evaluation
    3. 1. 1. Banking Act and Banking Ordinance
      2. 2. Finma emergency plan assessment
  4. 1. 1. 1. National focus
      2. 2. Composition
    2. 1. 1. Primary, secondary legislation, guidance
      2. 2. Principle of legality
      3. 3. Transparency
    3. c. Chronology
    4. d. Influence
    5. e. Invasiveness
3. 1. 1. a. Personal scope
    2. b. Threshold and exemptions
    3. c. Affected banks
  2. 1. a. Personal scope
    2. b. Threshold
    3. c. Affected banks
  3. 1. a. Personal scope
    2. b. Threshold and exemptions
    3. c. Affected banks
  4. 1. a. Focus of the scope
    2. b. Personal scope
    3. 1. 1. Clear cut thresholds?
      2. 2. Consolidated basis
      3. 3. Setting the threshold
    4. d. Other exemptions
    5. e. Affected G-SIBs
    6. f. Relation to expert commission recommendations
4. 1. 1. 1. 1. Core activities
      2. 2. Core services
      3. 3. Excluded activities and prohibitions
    2. 1. 1. Excluded activities
      2. 2. Prohibitions
    3. c. Summary
    4. d. Affected banks
  2. 1. 1. 1. Excluded activities
      2. 2. Exceptions
    2. 1. 1. Explicit activity restrictions for the financial trading institution
      2. i. First starting point: Financial service institution
        ii. Deliberate decision or editorial error
        iii. Second starting point: Objectives of the Act
        iv. Limitations
      3. 3. Conclusio
    3. c. Summary
    4. d. Affected banks
  3. 1. 1. i. Caveat
        ii. Mere planning?
        iii. Three options?
      2. 2. Systemically important functions
    2. b. Non-ring-fenced bodies
    3. 1. 1. UBS
      2. 2. Credit Suisse
      3. 3. Conclusio
    4. d. Summary
  4. 1. a. Activities within the ring-fence
    2. 1. 1. Basis of the exclusion
      2. 2. Activities
      3. 3. Exceptions
    3. 1. 1. Ring-fencing
      2. 2. Method of ring-fencing
    4. d. Flexibility
    5. e. Relation to expert commission recommendations
5. 1. 1. a. Capital and liquidity
    2. b. Governance
    3. c. Intragroup transactions and exposures
    4. d. Distributions
    5. e. Continuity of services
  2. 1. 1. 1. Proper business organisation
      2. 2. Regulatory requirements of the German Banking Act
    2. b. Capital and liquidity
    3. c. Governance
    4. d. Intragroup transactions and exposures
    5. e. Distributions
    6. f. Continuity of services
  3. 1. 1. 1. Emergency plan assessment
      2. 2. Resolvability incentives
      3. 3. Relation between emergency plan and resolvability incentives
    2. b. Capital and liquidity
    3. c. Governance
    4. d. Intragroup transactions and exposures
    5. e. Distributions
    6. f. Continuity of services
  4. 1. 1. 1. Capital and liquidity
      2. 2. Governance
      3. 3. Intragroup transactions and exposures
      4. 4. Distributions
      5. 5. Continuity of services
    2. 1. 1. Character
      2. i. Generally unnoticed
        ii. Special features of the Swiss approach
        iii. Considerable fence
      3. 3. Ring-fencing
      4. 4. Practical relevance
      5. 5. Switzerland as a role model for the EU?
6. 1. A. United Kingdom
  2. B. Germany
  3. C. Switzerland
  4. D. Results
7. VII. Results and Outlook
OutlookPages 306 - 308 Download chapter (PDF)
List of SourcesPages 309 - 342 Download chapter (PDF)