The Vickers Commission’s failure
Laurence J. Kotlikoff 26 October 2012
The UK’s Independent Commission on Banking set out to make banking safer, to ensure that what just happened won’t happen again, and to change both the structure and regulation of banking as needed. But this column argues that the Commission fails to achieve any of these aims. It instead proposes a new way to make the financial system and wider economy safer.
The UK is still reeling from the great financial crash. Real GDP remains below its 2007 level, the nation’s 8.4% unemployment rate is at a 16-year high, and youth unemployment is over 20% (BBC 2012). Over three million UK citizens can’t find work or have given up looking. Millions more are short on work – working part time or in jobs below, if not far below, their skill levels.
International finance Macroeconomic policy
UK, financial regulation, banking sector, Vickers Commission
Ring-fencing is good, but no panacea
Viral Acharya 25 October 2011
The Vickers Commission recommends separating commercial and noncommercial banking activities in order to protect core financial functions from riskier activities. This column warns that such ring-fencing may fail because there are still incentive problems in traditional banking activities. The accompanying risk-weighted capital requirement recommendations will address this only if we do a better job of measuring risks.
The recent report issued by the UK's Independent Commission on Banking, chaired by Sir John Vickers, provided recommendations on capital requirements and contained a proposal to ring‑fence banks – in particular, their retail versus investment activities. I view ring-fencing as potentially useful but argue that the more important question is whether the risk weights in current Basel capital requirements are appropriate.
Financial markets International finance
bank capital regulation, capital requirements, Vickers Commission, ring-fencing, risk weights