Structural Regulation Redux: The Volcker Rule

Marco Bevilacqua

This article was first published as a chapter in Basel III and Beyond, by Risk Books.

A.1 Introduction

In the current search for measures to eliminate or reduce the negative externality generated by systemically important financial institutions (SIFIs), prospective options available to regulators include structural solutions. These are mandated constraints and limits on the activities that a financial institution may exercise, on the investments it may undertake and on its size and financial structure.

However, this approach has not enjoyed much consensus among policymakers thus far. Indeed, as described in Chapter 10, most efforts in the ongoing process of reforming the international regulatory framework have been focused on the enhancement of the loss-absorbing capacity of financial firms (in order to reduce the likelihood of distress) and on the development of better resolution mechanisms (to limit the spillover effects of any single default event on the financial system as a whole). Risk-based prudential measures remain at the forefront, as the starting point, to tackle the issue of systemically important institutions.

The Financial Stability Board endorsed this view