Volcker, Vickers, Liikanen: Structural Reforms of the Banking Sector – Quo Vadit Europe?
The global financial crisis has led to a wave of new regulation hitting financial markets and players active therein. Immediate reactions entailed raising capital requirements through Basel III and generally strengthening oversight and supervision. However, it was the size, complexity and interconnectedness of certain systemic banks that has led politicians, regulators and the broader epistemic community to consider measures that go beyond the classical regulatory approach. Thus, potential structural measures for the financial sector have been put at the heart of socio-economic discourse.
With the proposals of Volcker, Vickers and Liikanen, the regulatory approach has for the first time been shifted to also include structural measures regarding size and scope of activities. However, while having originally been deemed a straightforward way of ensuring that banks are structured in a certain manner and face constraints as regards the engagement in certain activities, market realities have proven that the implementation of structural measures is highly complex and poses a number of challenges.
As a consequence, the financial sector faces legislation that is intended to amend existing market structures and business models. This paper will critically discuss the different elements of the Volcker, Vickers and Liikanen proposals, analyse implied costs and benefits and shed light on elements that will require further work.