Structural banking reforms and their implications for banks’ corporate governance
| Date | 07 June 2019 |
| Published date | 07 June 2019 |
| DOI | https://doi.org/10.1108/JFRC-04-2018-0058 |
| Pages | 515-525 |
| Author | Christiane Hellstern |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial compliance/regulation |
Structural banking reforms and
their implications for banks’
corporate governance
Christiane Hellstern
Eberhard Karls University, Faculty of Law, Tuebingen, Germany
Abstract
Purpose –The purpose of thispaper is to examine from a comparative perspective, the impactof structural
banking reformson the legal frameworks for the corporate governance of credit institutions.
Design/methodology/approach –This facilitates a functional analysis of the resulting corporate
governance structures,which in turn provides the basis for an analysis of conceptual concerns withregard to
the independenceof the separate entity.
Findings –The paper points out that structural banking reforms come with significant implications for
existing corporategovernance structures of credit institutions.The resulting corporate governance structures
rise conceptual concerns with regardto both the effectiveness of the independence of the separate entity and
the objectivesof structural banking reforms generally.
Practical implications –The paper shows that the implementation of structural banking reforms is a
complex operational issue and process forthe banking groups and the regulators. The challenge will be to
establish and upheld thering fence in a way to lower the risk of intra-group contagion. There is a great need
for regulatoryand supervisory policies that reinforcethe settled ring fence obligations.
Originality/value –This paper’s value lies in providing analysis of the implications of structural banking
reforms for the corporate governance of credit institutions. The relevant statutory frameworks as such set only the
core components of the new structure. Defining and implementing the design is left to the discretion of the
regulators.
Keywords Corporate governance, Financial regulation, Ring-fencing, Liikanen report,
Structural banking reform, Vickers commission
Paper type Research paper
1. Introduction
In the aftermath of the global financial crisis, the USA, Belgium, France, Germany and the UK
initiated structural banking reforms, designed to shield deposits from losses triggered by riskier
activities. On 29 January 2014, the European Commission published its own proposal (European
Commission, 2014) based on recommendations by an expert committee on structural banking
reforms (Liikanen Report, 2012). The Commission proposal has recently been withdrawn in the
Commission Work Programme 2018 (European Commission, 2017). The reforms are intended to
solve the problem of “too systemically important to fail”institutions. Although the different
national reform projects share the same objective, the technical approaches to implementing the
separation of functions differ. The “Volcker Rule”, established under section 619 of the Dodd-
Frank Act in the US in 2010, provides for a group-wideprohibition of specified business, whereas
under the other reforms, banks retain the possibility to transfer certain activities to a separate
This paper forms part of special section “Progression or regression: Regulatory and governance
challenges after the global financial crisis and Brexit”, guest edited by Steve Letza, Gary Evans and
Jens-Hinrich Binder.
Structural
banking
reforms
515
Received2 April 2018
Accepted11 July 2018
Journalof Financial Regulation
andCompliance
Vol.28 No. 4, 2020
pp. 515-525
© Emerald Publishing Limited
1358-1988
DOI 10.1108/JFRC-04-2018-0058
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