One of the things Europeans have been talking about in the wake of the financial crisis is the "ring fencing" of banks. In theory, you can ring fence lots of parts of a bank, all of which makes the bank a little less of a nexus of contracts and a little more of a nexus-of-contracts-with-some-contracts-blocked. The US could ring fence BNP Paribas' American subsidiary so that if one went bankrupt, the other would be solvent, for example. That's one kind of ring fencing. But what Europe means by ring fencing is the separation of retail banking from investment banking, as Jim Hamilton has observed about Germany's new law:
It is interesting how quickly a continent that never had Glass-Steagal has gotten very interested in it after the financial crisis. The US got rid of the separation of banking and securities partly because its banks complained they wouldn't be able to compete with European and Japanese banks that could do it all. Maybe it will be rethought over here if this sort of legislation becomes the norm abroad.
TrackBack URL for this entry:
Links to weblogs that reference Germany's New Banking Legislation Shows That "Ring Fencing" Banks Means Glass-Steagal: