Whether they do so in practice depends on loopholes in, or omissions from, the ring-fence. And each of the existing proposals has open questions on this front. For example, the Volcker rule separates only a fairly limited range of potentially risky investment bank activities, in the form of proprietary trading. The Vickers proposals mandate only a limited range of basic banking activities to lie within the ring-fence, namely deposittaking and overdrafts. And the Liikanen plans allow a wide range of derivative activity to lie outside of the investment banking ring-fence. It could be argued that these loopholes are modest. But as the history of the Glass-Steagall Act demonstrates, today’s loophole can become tomorrow’s bolthole, today’s ring-fence tomorrow’s string vest. At a minimum, this suggests the need for full and faithful implementation of the spirit as well as the letter of the Volcker, Vickers and Liikanen plans if risk cross-contamination is to be avoided A larger question-mark still hangs over whether these proposals will lead to a sea-change in the allocation of resource to retail and investment banking. The cultures of investment and retail banking are quite distinct. Retail banking relies on forming long-term relationships, while investment banking is inherently shorter-term and transactional. Housing these subcultures under one roof makes achieving the necessary separation of cultures and capital a significant operational headache. At a minimum, such a separation of culture and capital is likely to require entirely separate governance, risk and balance sheet management on either side of the ring fence.

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