Dual banking system
Due to legal regulations, the – credit business may only be conducted by banks (commercial banks) and the – securities business may only be conducted by specialized companies (investment banks, broker banks). Universal banks (institutions that conduct all financial transactions) are prohibited. – In the USA, this was introduced in 1931 (Glass-Steagall Act), only gradually from 1990 onwards, and then almost completely abolished in 2000. – In the U.S., this separation meant that large universal banks (especially those from Germany and Switzerland) were only able to operate on the U.S. market to a limited extent as competitors. – In the discussion about the causes of the subprime crisis in 2007 and the financial crisis that followed it, many experts recommended a general and global return to the separation banking system. This should make it more difficult for customers’ deposits to be put at risk for risky transactions. – These proposals, however, fail to recognize the reality. In our time, investment banks and commercial banks are interconnected in many ways. The collapse of the investment bank Lehmann Brothers in mid-September 2008 made this obvious. A domino effect occurred, shaking banks around the world that were intermeshed with each other in business. – With the Risk Shield Act, however, German lawmakers basically followed corresponding recommendations that require the legal and organizational separation of high-risk financial transactions from the deposit-taking business of the institutions. This is intended to prevent loss-making financial transactions from having to be borne by depositors. – See specialized banking system, Glass-Steagall Act, Lehman bankruptcy. – Cf. Annual Report 2013 of BaFin, p. 78 (explanatory presentation of the new legal requirements).
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
https://de.wikipedia.org/wiki/Gerhard_Ernst_Merk
https://www.jung-stilling-gesellschaft.de/merk/
https://www.gerhardmerk.de/