List of Banks in the UK
British Arab Commercial Bank Plc. Ford Motor Credit Company. This entity may be part of the same bank-holding company, but must be separately funded. The other main class of consumer financial service organisation in the United Kingdom is the building society , but the building society sector is much smaller than it used to be as many major building societies demutualised in the s and s and there has also been ongoing consolidation via mergers between societies.
While the reforms are at different stages of implementation, there is a strong ongoing discussion on what possible economic consequences are to be expected. The goal of this paper is to look at the alternative approaches of these reform proposals and to assess their likely consequences for bank business models, risk-taking and financial stability.
Our conclusions can be summarized as follows: First, the focus on a prohibition of only proprietary trading, as envisaged in the current EU proposal, is inadequate.
It does not necessarily reduce risk-taking and it likely crowds out desired trading activities, thereby negatively affecting financial stability. Second, there is potentially a better solution to limit excessive trading risk at banks in terms of potential welfare consequences: Trading separation into legally distinct or ring-fenced entities within the existing banking organizations.
This kind of separation limits cross-subsidies between banking and proprietary trading and diminishes contagion risk, while still allowing for synergies across banking, non-proprietary trading and proprietary trading. Ein Verbot des Eigenhandels von Banken, wie in einer Gesetzesinitiative der EU-Kommission vorgesehen, ist problematischer als zunächst angenommen. Es würde die Risikoaufnahme von Banken und auch das systemische Risiko nicht notwendigerweise reduzieren.
All proposals for bank structural reform aim to reduce the risks believed to emanate from bank trading activities. The focus of the paper is on one major element of these proposals: The authors favor the separation of all trading activities into a legally distinct broker dealer institution, a solution which is related to the suggestions in the Vickers proposal for the UK and also those of the High Level Expert Group chaired by Erkki Liikanen for the EU.
For the implementation of all reform proposals, the challenge of classifying securities transactions as being either client business, treasury business, or proprietary trading is a key element. This renders a ban of just one of these activities difficult if not impossible.
Conversely, the prohibition of proprietary trades may have an important unintended consequence: Such misclassifications are more likely if the hedging or market making strategy is complex, thus inviting misinterpretations. The costs of reductions in beneficial trading may be significant, both for financial stability and for market liquidity.
The structural reform projects currently discussed or implemented in the U. The Liikanen proposal, in contrast to Volcker, does not single out proprietary trading for special treatment, but instead requires that all trading business, be it proprietary or client-oriented, is either prepared for separation in a crisis situation avenue 1 or principally separated from retail banking avenue 2.
After considering the Liikanen proposal, the EU Commission, in January , put forth a legislative proposal Barnier proposal which recommends an outright ban for proprietary trading for big banks in Europe. The proposal does grant the responsible supervisor the power to require the separation of all trading if problems occur that potentially put the whole bank and the wider financial system at risk. The negotiations in the European Parliament on the Barnier proposal have reached a deadlock.
There is a possibility that EU Commissioner Jonathan Hill will recall the legislative proposal at this stage.
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