Separating retail and investment banking: evidence from the UK

Matthieu Chavaz (matthieu.chavaz@bankofengland.co.uk) and David Elliott
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Matthieu Chavaz: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH

No 892, Bank of England working papers from Bank of England

Abstract: The idea of separating retail and investment banking remains controversial. Exploiting the introduction of UK ring-fencing requirements in 2019, we document novel implications of such separation for credit and liquidity supply, competition, and risk-taking via a funding structure channel. By preventing conglomerates from using retail deposits to fund investment banking activities, this separation leads conglomerates to rebalance their activities towards domestic mortgage lending and away from supplying credit lines and underwriting services to large corporates. By redirecting the benefits of deposit funding towards the retail market, this rebalancing reduces the cost of credit for households, without eroding lending standards. However the rebalancing also increases mortgage market concentration and risk-taking by smaller banks via indirect competition effects.

Keywords: Bank regulation; Universal banking; Glass-Steagall; Mortgages; Syndicated lending; Competition (search for similar items in EconPapers)
JEL-codes: G21 G24 G28 (search for similar items in EconPapers)
Pages: 75 pages
Date: 2020-11-27, Revised 2021-02-18
New Economics Papers: this item is included in nep-ban, nep-com and nep-fdg
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Citations: View citations in EconPapers (1)

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