Universal Banks, Universal Crises? Disentangling Myths from Realities in Quest of a New Regulatory and Supervisory Landscape

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The recent financial turmoil has instigated intense debate on the relationship between universal banking and financial stability. Employing legal and financial analysis and drawing on available empirical evidence, this paper critically analyses the arguments for and against universal banking, concluding that it resembles a double-edged knife: it presents opportunities but also bears risks. In this context, a case is made against the complete separation of banking and investment and in favour of a more fine-tuned regulatory regime. The paper suggests that, first and foremost, policy makers need to curb the systemic and systematic risk of large universal banks. From this perspective, the paper suggests that, alongside proportionate regulatory intervention for universal banks constituting systemically important institutions (ie stricter capital, liquidity and risk management requirements, adoption of a special resolution regime and a prompt corrective action procedure), enhancing supervisory effectiveness and market transparency should be top priority in the reform agenda.

Document Type: Research Article

DOI: http://dx.doi.org/10.5235/147359711795344172

Publication date: April 1, 2011

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  • The Journal of Corporate Law Studies provides a forum for scholarship on corporate, securities and financial law broadly construed. Thus the Journal publishes articles on subjects as diverse as insolvency and the commercial conflict of laws, in addition to mainstream topics such as directors' duties and financial regulation. The Journal also embraces interdisciplinary work and work in cognate fields.Articles published in the Journal are subject to rigorous peer review. Shorter articles and notes are refereed where appropriate.
    The Journal is published twice a year in June and October.
    The journal will be of interest to academics and practitioners specialising in any of the subjects covered, and also to those with an interest in the strategic direction of the law and the influences which affect it - thus regulators, law and policy-makers, and the judiciary.
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