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limit of involvement in an investment fund (3 percent of the total number of units),
prohibition of the capital relationship with the funds, which invest their funds,
prohibition of entering into transactions bearing conflict of interest between a bank and
its customers,
prohibition of entering into transactions which result in a significant increase in risk,
prohibition of entering into transactions that threaten the stability of the financial
system.
Volcker Rule has been criticized mainly by the banking lobby, defending the benefits of the
Gramm-Leach-Bliley Act. Arguments for and against the concept of restoring the spirit of the
Glass Steagall Act relate primarily to the opinion that the Volcker Rule is to eliminate the risk of
the investment rather than on an assessment of its size and the ability of banks to absorb it.
In the UK, preparation of the report was commissioned to John Vickers. The Vickers Report
[Final Report ..., 2011] calls for reforms aimed at:
increasing the capacity of banks to absorb losses,
developing procedures for resolution and controlled bank failures,
limiting the tendency of banks to take excessive risks.
A key element of structural reforms called for in the report in order to implement the
aforementioned requirements is the concept of separation of retail banks, serving households
and SMEs, which should be eligible to public support. Those banks must be isolated from other
financial institutions with structural Ring Fence. Getting a status of the ring-fenced bank
requires meeting of several conditions. At first, these banks would be required to provide
certain mandatory services (collecting deposits and granting credit for individuals and SMEs),
which are of particular importance for the whole economy. Secondly, ring-fenced banks could
not undertake the services that would increase excessively exposure to risk, in particular by
opening market positions. That requirement takes into account asymmetry of information,
disabling effective assessment of banks condition from the perspective of individuals or SMEs
*Frączek 2014+. The Vickers report does not explicitly refer to the concept of separation of
investment and commercial banking. However, it was clearly suggested, that only banks
implementing mandatory services could count on the state support.
In 2012, on the initiative of the EU Commissioner, working group led by Erkki Liikanen was
established [High-level Expert Group ..., 2012]. Liikanen Group worked in two directions. The
first was focused on recovery plans, which were to decide how much separation is required for
financial institutions collecting deposits. The second line was focused on the mandatory
separation of banking activities that generate a high level of risk. *Kasiewicz, Kurlioski,
Marcinkowska, 2013]. The report discussed advantages and disadvantages of various regulatory
options, referring to the banks involved in investment activities. The key issue of recommended
reform is the concept of compulsory separation of banks' investment operations carried on
their own account from commercial services. According to experts of the Liikanen Group, lack
of state protection for market investments, would limit banks' willingness to take excessive risk.
Moreover, disability of covering losses on market portfolios with banking deposits, would
reduce the social costs of financial turmoil.
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