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SEPARATING COMMERCIAL AND INVESTMENT BANKING:
SENTIMENTAL COMEBACK TO HISTORY OR AN UNAVOIDABLE RUN
TOWARDS SAFER FUTURE?
Tomasz ZIELIOSKI
University of Economics in Katowice, Finance and Insurance Faculty,
Department of Banking and Financial Markets, Katowice, Poland.
Abstract
The main purpose of the paper is to highlight selected voices in discussion about separation of commercial and
investment activities. Also revision of selected propositions included in new European capital regulations,
promoting (even if only implicit) divergence of combined nowadays activities, will be undertaken.
The concept of the separation between commercial and investment activity of universal banks has been revived in
recent years as a result of the financial crisis of 2008 years. The supervisory authorities began to seek the ways to
ensure a more stable banks and more resilient financial system. Many of proposed solutions involve a change in
the paradigm of the bank as an institution of public trust. One of the most spectacular discussions refer to
returning to the concept started with Glass Steagall Act in 1933. Nowadays, the prospect of separation between
commercial and investment banks has as many supporters as opponents. However, a new paradigm for
contemporary banking systems must be agreed. Otherwise, outbreak of a new crisis would be unavoidable. Even if
definite come back to Glass Steagall framework is not possible, some propositions of that direction have already
been posed by official financial committees in many countries. Also new capital regulations (Basel III) initiate
revision of old approach based on deep (and ultimately fatally misleading) convenience of perfect risk
measurement capabilities.
Expected conclusion of the paper is, that at least partial and even only functional separation (not necessarily
institutional) of commercial and investment banking activity is inevitable if safer future of financial systems is to be
ensured.
Keywords: banking, commercial and investment banking, financial systems.
Introduction
The concept of the separation between commercial and investment activity of universal banks
has been revived in recent years as a result of the financial crisis of 2008. The supervisory
authorities began to seek the ways to ensure a more stable banks and more resilient financial
system. Many of proposed solutions involve a change in the paradigm of the bank as an
institution of public trust. One of the most spectacular discussions refers to restoring the
concept started with Glass Steagall Act in 1933. Nowadays, the prospect of separation between
commercial and investment banks has as many supporters as opponents. However, a new
paradigm for post-crisis banking must be ultimately agreed. Otherwise, outbreak of a new crisis
would be unavoidable. Even if definite come back to Glass Steagall framework is not possible,
some propositions of that idea have already been posed by official bodies in many countries.
The main purpose of the paper is to highlight selected voices in debate about separation of
commercial and investment activities. Discussion of appropriate arguments will be preceded by
the conclusions drawn from the history of banking systems in the US, Germany and Great
Britain, and from outcomes of the reports prepared by officially established groups and
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