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Do We Need a Separate Banking System? An Assessment

Author

Listed:
  • Gunnar Lang

    () (Centre for European Economic Research (ZEW), P.O. Box 10 34 43, 68034 Mannheim)

  • Michael Schröder

    () (Centre for European Economic Research (ZEW), P.O. Box 10 34 43, 68034 Mannheim, Germany, and Frankfurt School of Finance & Management, Frankfurt / Main)

Abstract

Motivated by the current discussion on different separate banking systems, we provide an overview and assessment of the different proposed systems and outline their potential effects on systemic stability and the German banking sector. The results show that the various separate banking systems only play a minor role in reducing and limiting systemic risk. They only marginally contribute to solving conflicts of interest and can even be detrimental to banking business diversification. A separate banking system could, however, facilitate banking supervision and banking resolution by reducing the banking system’s complexity. Furthermore, credible threats to not support investment banks with federal resources in times of crisis could lead to a more adequate incentives structure of suppliers of equity and debt capital. More efficient measures to further reduce systemic risk in the financial sector should, however, use different levers, such as additional minimum regulatory capital requirements.

Suggested Citation

  • Gunnar Lang & Michael Schröder, 2013. "Do We Need a Separate Banking System? An Assessment," Credit and Capital Markets, Credit and Capital Markets, vol. 46(3), pages 331-355.
  • Handle: RePEc:kuk:journl:v:46:y:2013:i:3:p:331-355
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    References listed on IDEAS

    as
    1. Adrian Blundell-Wignall & Gert Wehinger & Patrick Slovik, 2010. "The elephant in the room: The need to deal with what banks do," OECD Journal: Financial Market Trends, OECD Publishing, vol. 2009(2), pages 1-27.
    2. Schröder, Michael & Borell, Mariela & Gropp, Reint & Iliewa, Zwetelina & Jaroszek, Lena & Lang, Gunnar & Schmidt, Sandra & Trela, Karl, 2012. "The role of investment banking for the German economy: Final report for Deutsche Bank AG, Frankfurt/Main," ZEW Dokumentationen 12-01, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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    More about this item

    Keywords

    Banking regulation; commercial and investment banking; financial crises;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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