88 S. Cal. L. Rev. Postscript 1 (2014-2015)

handle is hein.journals/pstscrpt87 and id is 1 raw text is: 












            NARROW BANKING AS A

      STRUCTURAL REMEDY FOR THE

      PROBLEM OF SYSTEMIC RISK: A

           COMMENT ON PROFESSOR

         SCHWARCZ'S RING-FENCING


                     ARTHUR E. WILMARTH, JR.*


     In Ring-Fencing,1 Professor Steven Schwarcz provides an insightful
overview of the concept of ring-fencing as a potential regulatory
solution to problems in banking, finance, public utilities, and insurance.2
As Professor Schwarcz explains, ring-fencing can best be understood as
legally deconstructing a firm in order to more optimally reallocate and
reduce risk.-3 Ring-fencing has gained particular prominence in recent
years as a strategy for limiting the systemic risk of large financial
conglomerates (also referred to herein as universal banks). Professor
Schwarcz describes several ring-fencing plans that have been adopted or
proposed in the United States, United Kingdom, and European Union.4
     This Comment argues that narrow banking is a highly promising
ring-fencing remedy for the problems created by universal banks. Narrow
banking would strictly separate the deposit-taking function of universal
banks from their capital markets activities. If properly implemented,
narrow banking could significantly reduce the safety net subsidies currently

    *  Professor of Law, George Washington University Law School. I am grateful to Peter Conti-
Brown for helpful comments on a preliminary draft of this Comment. This Comment includes
developments through June 30, 2014.
    1. Steven L. Schwarcz, Ring-Fencing, 87 S. CAL. L. REV. 69 (2013).
    2. Id. at 70.
    3. Id. at71.
    4. Id. at 78-81, 98-105 (summarizing the regulatory approaches of the Vickers Report, the
Glass-Steagall Act, and the Volcker Rule).

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