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Compare and critically evaluate ring-fencing and total separation approaches to banking regulation

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Secondly, rng-fencing aims at making it easier and less costly in resolving banks. Tirdly, tis approach controls incentives for excessive risk-taking. Aart from the three main objectives of ring-fencing, tis approach offers several benefits such as insulating vital UK retail bank services from global financial crises, i allows for an easier monitoring of banks under ring-fencing and in a much transparent way. Te other possible benefit is its ability to promote competitiveness because UK retail banking can be made safer (Bertsch 2012, pThe ring-fencing approach offers a number compared to the total separation approach of bank regulation.

T begin with, rng-fencing has the potential to preserve diversification benefits because it allows for an efficient use of capital, ad probably lower funding costs. Te second advantage is that the ring-fencing strategy preserves a higher degree of operational synergies. Tirdly, rng-fencing approach offers the advantage of having reduced legal obstacles in comparison to full separation. I addition, rng-fencing approach can be implemented with the existing European Union framework, wich includes foreign banks within UK subsidiary (Independent Commission on Banking Rng-fencing bank regulatory approach offers a number of restrictions to ring-fenced banks.

Te first restriction is that banks are not permitted to render services that are not offered to customers within the EEA. Te other restriction prohibits such banks from offering services that lead to an exposure to a non-ring-fenced banking institution or non-banking financial organization. Mreover, rng-fenced banks are not allowed to offer services that would lead to trading book asset such as investing in stock, ad corporate debt securities. Aart from these restrictions, uder this regulatory tey restricted from offering services that would influence the necessity to hold regulatory capital against counter-party credit risk or market risk.

Tese risks include the purchase or origination of derivatives. Fnally, rng-fenced banks are prohibited from offering services that relate to the secondary market activity (Singh 2007, pIn ring-fencing approach, rstriction of the above mentioned services comes along with a number of benefits. Trough service restriction, i becomes harder or expensive to resolve ring-fenced banks. Scondly, pohibition. ..

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