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Home arrow Political science arrow A New Model for Balanced Growth and Convergence: Achieving Economic Sustainability in CESEE Countries



An important objective of the mandatory separation, proposed by the Group, is simplicity and unambiguity. These facilitate implementation at the EU level. Furthermore, banking activities which naturally belong together should be conducted within the same legal entity.

To promote these aims the proposed mandatory separation includes both proprietary trading and market making, as differentiating these activities from one another would be challenging5 and, if placed in different legal entities within the same banking group, some natural synergies might be lost. In this respect, the proposal defines deposit banks somewhat more narrowly than the volcker Rule in the United States. However, an important difference is that the proposed mandatory separation in the EU can take place within a banking group, whereas the volcker Rule prohibits proprietary trading for the entire banking group. Further, deposit banks are allowed to extend all types of corporate loans because differentiating among corporate loans according to customer size would be equally challenging at the EU level, and important scale economies in corporate lending might be lost as a result. This implies that, as regards corporate lending, deposit banks would be somewhat broader than under the proposal made by the Independent Commission on Banking headed by former Bank of England chief economist John vickers.

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