Universal banking and the return of ‘Glass-Steagall’

Abstract

Introduction: This research aims to consider the banking realm within different legal systems, seeking to analyse the possibility of a one-size-fits-all approach. Historically, different jurisdictions have shifted their approach from one extreme to another, all the while providing both opportunities and crises. Arguments which have been put forward along the years, both in favour as well as against universal banking, shall be considered. Retail and commercial banking face different risks and objectives with respect to investment banking. Cranston states that while the former is mainly faced with credit risks, the latter is focused on market risks. Universal banking, however, provides an aggregation of those risks since it provides both retail and investment banking services. The present analysis is mainly focused on risks which banks incur upon the use of depositors’ funds through financial intermediation. Admittedly banks also earn substantial fees which help to offset losses incurred through their operations. Nevertheless, being a legal analysis rather than an economic analysis, the positive impact or otherwise of such fees is extraneous to the arguments considered below.