CLE Materials for Panel #1 - George Washington University Law ...

WILMARTH
4/1/2011 1:11 PM
2011] The Dodd-Frank Act 1051
United Kingdom’s new coalition government announced that it would
establish “an independent commission to investigate separating retail
and investment banking in a sustainable way.” 435 In September, the
commission issued its first report, which stated that the narrow
banking approach was among the options the commission planned to
consider. 436 If the United States and the United Kingdom both
decided to implement a narrow banking structure (supplemented by
strong systemic risk oversight and resolution regimes), their
combined leadership in global financial markets would place
considerable pressure on other developed countries to adopt similar
financial reforms. 437
The financial sector accounts for a large share of the domestic
economies of the United States and the United Kingdom. Both
economies were severely damaged by two financial crises during the
past decade (the dotcom-telecom bust and the subprime lending
crisis). Both crises were produced by the same set of LCFIs that
at 6–7 (expressing support for Kay’s narrow bank proposal and for the Volcker Rule as
two alternative possibilities for separating the “utility aspects of banking” from “some of
the riskier financial activities, such as proprietary trading”); HOUSE OF COMMONS
TREASURY COMM., TOO IMPORTANT TO FAIL—TOO IMPORTANT TO IGNORE, 2009-10,
H.C. 9-Vol. 1, at 52, 59, available at http://www.publications.parliament.uk/pa/cm200910
/cmselect/cmtreasy/261/261i.pdf (expressing qualified support for Kay’s narrow banking
proposal).
435 Ali Qassim, International Banking: U.K.’s Ruling Coalition to Investigate
Separating Investment, Retail Banks, 94 Banking Rep. (BNA) 1055 (May 25, 2010).
436 Independent Commission on Banking (U.K.), Issues Paper: Call for Evidence 4–5,
33–34 (Sept. 2010), available at http://bankingcommission.independent.gov.uk/banking
commission/wp-content/uploads/2010/07/Issues-Paper-24-September-2010.pdf. For
discussions of the Commission’s preliminary work, see Richard Northedge, To Split or
Not to Split? What Is the Future for Britain’s Banks?, INDEPENDENT ON SUNDAY
(London), Sept. 26, 2010, at 80; Michael Settle, Big Banks Could Be Broken Up, HERALD
(Glasgow, Scotland), Sept. 25, 2010, at 12.
437 Kay, supra note 144, at 74; HOUSE OF COMMONS TREASURY COMM., supra note
434, at 70–71 (quoting views of former FRB Chairman Paul Volcker); see also TARULLO,
supra note 246, at 45–54 (describing how the United States and the United Kingdom first
reached a mutual agreement on proposed international risk-based bank capital rules in the
1980s and then pressured other developed nations to adopt the Basel I international capital
accord). In addition, the FRB could refuse to allow a foreign LCFI to acquire a U.S. bank,
or to establish a branch or agency in the United States unless the foreign LCFI agreed to
structure its operations within the United States to conform to any narrow bank restrictions
imposed on U.S. FHCs. See Pharaon v. Bd. of Governors of the Fed. Reserve Bd., 135
F.3d 148, 152–54 (D.C. Cir. 1998) (upholding the FRB’s authority under the BHC Act to
regulate foreign companies that control U.S. banks), cert. denied, 525 U.S. 947 (1998); 12
U.S.C. § 3105(d) (requiring foreign banks to obtain the FRB’s approval before they
establish any U.S. branches or agencies); id. § 3106 (requiring foreign banks with U.S.
branches or agencies to comply with the BHC Act’s restrictions on nonbanking activities).