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A separate investment bank, without undue guarantees, forced to raise capital on a market
basis, can close some of market position, which now turn out to be ineffective. At the same
time, commercial bank can expand its lending, which due to fairer competition may prove to be
more profitable. In no case, however, the bankruptcy of the bank shall not constitute such a
large and unpredictable threat, as it was before.
Regulatory response
In the aftermath of the crisis of 2008, the world is still fighting with contradictions between new
trends and innovations at global financial systems on the one side, and institutional
arrangements and regulations, creating conflicts in policy objectives and ineffective in
supporting financial stability. Europe established economic union of countries with very
different structures that are subject to asymmetric real shocks. The inconsistencies of the
monetary union have resulted in a sovereign debt crisis which is interacting with banks through
market prices volatility in a most dangerous manner. Banks under Basel II had been allowed too
much leverage [Blundell-Wignall 2011]. In USA, after the outbreak of the crisis, the minor
reflection came, whether Glass–Steagall (repealed by Gramm–Leach–Bliley Act 1999), as
originally intended, would have prevented these issues. Works of established commissions and
groups provided numerous recommendations and guidelines that could be used for
preparation of new, better and more adequate regulations. The Volcker Rule has been adopted
in Dodd–Frank Wall Street Reform and Consumer Protection Act, at least partially restoring the
soul of Glass-Steagall. In the Europe the first efforts after crisis outbreak has been focused on
renovation of Basel capital adequacy rules. In Basel III, bank-level regulations, aimed at raising
the resilience of individual banking institutions to periods of stress, has been accompanied with
macroprudential approach, regarding system wide risks that can spread across the banking
sector as well as the procyclical amplification of these risks over time. As the financial crisis
evolved and turned into debt crisis in 2010, it became clear that, for those countries which
shared a currency and were even more interdependent, more had to be done. Eventually, in
June 2012, Heads of State and Government agreed to create a Banking Union, completing the
economic and monetary union, and starting centralized application of EU-wide rules for banks
in the euro zone. New mechanism comprises of three main pillars: (i) ECB as a common
supervisory authority of the euro area, (ii) common resolution fund & mechanisms for failing
banks, (iii) common deposit-insurance scheme to prevent bank runs.
These and other regulatory efforts seem to be moving in the right direction. They all go towards
key goals: reduce the probability of bank failure, reduce the likelihood of government
intervention and reduce the cost of government intervention. Good work has been done in
adopting measures in the domains of capital, liquidity and resolution of banks in order to
increase the resilience of the banking sector, within the financial system. Unfortunately still is
unknown, whether the undertaken measures will be capable to achieve the goals. Specially,
that the banks themselves are reluctant to give up the privileges of deregulation. They can limit
the scope or even suppress changes through powerful lobbying. It seems idea of separation is
one of particularly unwanted [Szpringer, 2013]. Promoting in exchange increasingly
sophisticated and complex system of prudential regulations, only apparently leads to a safer
financial system. In reality, however, it may be another trap, allowing the use of information
asymmetry, regulatory anarchy and consequently arbitration.
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