**The traditional separation between commercial and investment banking is fading internationally, although many banks prefer to offer the latter via a standalone securities market vehicle** . As can be seen in the Table below, Chilean banks are allowed to engage in most investment banking activities, with the exception of trading and long-term investments in equity (a carry-over from the associated problems of the 1982 crisis). Mexican banks are not allowed to underwrite or trade equities, although (like in the EU) they can take long-term equity investment positions subject to strict concentration, related party and capital adequacy limits. In Spain and other EU countries, most investment banking services can be offered directly by banks but it is common practice for this type of business to be carried out by a securities subsidiary. However, even in such cases, the banks organize their business lines so that they can offer their clients the full gamut of investment banking services in an integrated fashion, regardless of the different legal vehicles that are performing different roles.

**<u>Table 12: Permissible Investment Banking Activities in Chile, Mexico and Spain</u>**

|||Corredores de<br>**Chile**|Agentes de|**Mex**|Casas de<br>**ico**||Agencias de<br>**Spain**|Sociedades de|
|---|---|---|---|---|---|---|---|---|
|**Permissible Activities**|Bancos|Bolsa|<br>Valores|Bancos|Bolsa|Bancos|<br>Valores|Valores|
|Institutional / High Net Worth asset management|X|X|X|X|X|X|X|X|
|Cash management andpayments services|X|||X||X|||
|Custody|X|X|X|X|X|X|X|X|
|Trust / fiduciaryservices|X|X|X|X|X|X|X|X|
|Foreign exchange trading- own account|X|X|X|X|X|X|||
|Derivatives trading- own account|X|X|X|X|X|X||X|
|Sovereign debt underwriting (primarydealers)|X|X|X|X|X|X||X|
|Sovereign debt trading- own account|X|X|X|X|X|X||X|
|Corporate debt underwriting|X|X|X||X|X||X|
|Corporate debt trading- own account|X|X|X|X|X|X||X|
|Equities underwriting|X|X|X||X|X||X|
|Equities trading- own account||X|Onlylisted stocks||X|X||X|
|Advisory (M&A,IPOs)and structuringservices|X|X|X|X|X|X||X|
|Institutional brokerage(F/X,debt,equity,derivatives)|X|X|X|Except equity|X|X|X|X|
|Retail brokerage(F/X,debt,equity,derivatives)|F/X and debt|X|X||X|X|X|X|
|Private equityfund management||||X|X|X||X|
|Merchant banking/ investments in the real sector<br>||X|Onlylisted stocks|X<br>||X<br>|||
|Customer deposits(demand or savings accounts)|X|||X||X|||

_Source: Own analysis based on information from relevant Superintendencies and Central Banks._

**Equity investments in the real sector by Colombian banks should only be allowed when a comprehensive framework for consolidated supervision is adopted** . In other countries (e.g. EU), equity investments in the real sector in the banking book (as opposed to the trading book) of banks are often allowed under strict prudential requirements. However, investing in real sector companies has historically been forbidden to banks (but not CFs) in Colombia. A strong argument can be made that such a measure remains necessary given the dominant presence of mixed-activity economic groups in Colombia’s financial system, their often complex and non-transparent corporate structure, and the lack of a sufficiently comprehensive legal definition of an economic group for financial supervision purposes. Unless and until the two latter issues are resolved by the adoption of fully comprehensive laws, regulations and supervisory procedures (see General Reforms 2 and 4), the risk of extending the safety net to such activities by bringing them under the bank would be relatively high and would outweigh any potential benefits that could arise. In addition, the forthcoming Basel II Accord penalizes banks for such investments (especially for non-listed firms) by assigning them higher capital requirements; as a result, banks in other countries have been spinning off such activities in separate vehicles such as private equity funds.

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