Retail and Investment Banking in the UK Essay Example | Topics and Well Written Essays - 2500 words

Retail and Investment Banking in the UK - Essay Example Even though the face of banking may change, the functionality may not be altered in many cases. This, therefore, means that the need to come up with strategies to accommodate the change is necessary. One of the strategies that are brought forward is the use of separation of investment banking from the retail section of banking. Separation of retail banking from investment banking is a strategy that is required as a measure to increase financial stability within a national economy. In this separation, the banks either specialize to perform retail or investment banking in an arrangement known as ring-fencing of the banks (Coppola, 5, September 2014 ). In this arrangement, a local subsidiary of a bank that takes the deposits of local customers is protected from the parent corporation through trade bans and deposits security mechanisms (Song 2004, pp 19). In this way, the deposits of the local customers are protected from external shocks of the economic uncertainties that the large international corporations could have exposed them to. In Great Britain (2012, pp11), the rules that set up the conditions for ring-fenced banks are listed. These rules set the prohibitions that are set for the banks that are set by the regulating authority. In this essay, the effectiveness of the separation of retail banking and investment banking are discussed. The focus of the essay remains if the separation can really bear intended fruits or collapse and the possible consequences of the separation. Investment banking provides services and funds to different sectors of the economy. In doing this, investment banking exposes utilizes the financial capital that is majorly drawn from the savings or deposits of the clients. It means that in a worst-case scenario, if the economic forces force the investments to collapse totally, then the bank is faced with insolvency.