This is a crisis-time benefit of separation. Second, separation can secure an improved pre-crisis allocation of financial resources from a societal perspective. High private return investment banking activities may crowd-out the human and financial resources devoted to high social return commercial banking activities. 6  BIS central bankers’ speeches  Investment banking activities might also piggy-back on the cheaper cost of deposit funding. In effect, universal banking allows privately optimal, but socially sub-optimal, crosssubsidisation. This is a normal-times benefit of separation. Both of these costs were evident ahead of, and during, the recent crisis. Ahead of crisis, resources gravitated to the investment banking side of the fence. Between 2000 and 2007, UK banks’ trading books rose six times as fast as their banking books. Human capital made the same journey, helped by investment banking salaries rising four times as fast as commercial bank salaries since 1980. In the teeth of crisis, risk cross-contamination became a potent factor. Basic banking services in universal banks were often subject to severe disruption from trading book losses, which exceeded by many multiples the capital allocated to them. That is why national deposit insurance schemes were extended and in some cases became temporarily unlimited. It is also why repeated attempts have had to be made to resuscitate weak credit growth over the past few years. So how far will existing structural proposals take us in harnessing these benefits? Volcker, Vickers and Liikanen seek legal, financial and operational separation of activities. So in principle each ought to prevent cross-contamination at crisis time.

True sovereignty is reflected not in the power of making laws – as a legal definition would have it – but in the ability to control outcomes and respond to the fundamental needs of the people: what John Locke defines as their “peace, safety, and public good”. [3] The ability to make independent decisions does not guarantee countries such control. In other words, independence does not guarantee sovereignty. Countries that are completely shut off from the global economy, to take an extreme but instructive example, are independent but not sovereign in any meaningful sense – often relying on external food aid to feed their people. Yet being connected through globalisation also 1 / 10  BIS central bankers' speeches  increases the vulnerability of individual countries in many ways. They are more exposed to financial spillovers and to the aggressive trade policies of foreign states, while increased competition makes it harder for states to coordinate with one another to enforce regulations and set standards so as to achieve their social goals. This restricts their control over domestic economic conditions. In this environment, countries need to work together to exercise sovereignty. And this applies even more within the EU. Cooperation within Europe helps protect states from external pressures, and it helps enable their policy choices. Working together to protect Globalisation has profoundly changed the nature of global production and deepened the ties that exist between countries. Cross-border holdings of financial assets are now around 200% of global GDP, compared with about 70% in 1995.