9 The recent regulatory proposals will affect universal banks simply because these regulatory

proposals are targeting big name banks that are deemed too big to fail with risky operations
across the world. Such proposals would of course impose heavy and tight regulations on
international banks whose financial failure could lead to a major negative impact on the
economy, as governments look for solutions for financial and economic stability. For instance the
Dodd Frank Act, Vickers report and Basel III target the 1st and the 2nd (EU classified as a country)
largest economies in the world respectively. In the case of Dodd-Frank act, the government can
request for orderly liquidations or restructurings if targeted firms become too weak, while in both
the US and the EU, taxpayer money would be protected against bailouts, thus rendering
bankrupts banks as good as gone.
I somewhat disagree with the recent proposals, as banks will look to cut back many operations
and businesses in order to avoid heavy sanctions. Such a move will definitely increase the
unemployment rate as companies will look to cut back on staff in order to be profitable. Such
proposals might stabilize the economy, but at the same time they will be holding back the
financial system, thus reducing the chances of economic growth and also investor options.
From a neutral point of view, I believe these regulatory proposals are absolutely needed as they
seek to protect consumers money or interests. In an economy, financial stability and risk are two
extremely important factors which affect investor decisions. These proposals will definitely help
protect taxpayers money as people should not be held liable for recklessly mismanaged banks.

10 - In order to answer this question, we must first understand the concept of narrow banking
itself. Narrow banking could be interpreted as the opposite of universal banking, in the sense that

the word narrow means how a bank uses its fund, not how limited its activities are. In Narrow
Banking, a bank uses its funds by investing in risk free assets in the form of government
securities such as T-bills which are usually safe and highly liquid. Loans would be made by other
financial intermediaries, which would effectively stop banks in engaging in risky investments
such as loan assets.

Arguments for narrow banking:

-

Tighter control over money supply; banks can shift to government securities such as
Treasury Bills, which like bank loans, are money earning assets but with less interest rate
risk, while they would hold sufficient cash reserves for potential withdrawals from
customers.
Narrow banks will also likely be able to withstand any amount of withdrawals from
depositors, because all the money (deposits) of the bank are invested in highly liquid
government securities. These securities can quickly be sold into cash, usually with a low
transaction cost involved. Narrow banking would also likely decrease the cost of deposit
insurance, assuming risk will decrease following the implementation of narrow banking.
This will significantly decrease expenses for a narrow bank.

Arguments against narrow banking:

-

Banks will generally bring in lower profits, as some investors will look into investing their
money at financial institutions which provide better returns. They will have to satisfy
depositors who are bound to be paid a lower interest rate. We can also presume that tighter
regulations might also reduce business for banks, as people look for funding from other lessregulated financial institutions.
The introduction of narrow banking might induce more bailouts. Market instability is bound
to happen, as some financial institutions will not be covered by narrow banking regulation,
thus engaging in what would be presumed, the risky activities that banks were usually
participating in. At some point these financial institutions will eventually fail, forcing
bailouts to protect customers. At the same time, narrow banks will lose support from the
government as they will be seen as non-risky financial intermediaries.

Citations:

Suman, B. (2015). Preventing Banking Sector Distress and Crises in Latin

America. [online] Google Books. Available at:
https://books.google.co.uk/books?
id=OwvialeG9EUC&pg=PA35&lpg=PA35&dq=narrow+banking+advantages+
disadvantages&source=bl&ots=6LvFuulHAS&sig=d6GG8uYhCCa0YqFuad7Ra
lXiLM&hl=en&sa=X&ved=0CEcQ6AEwBWoVChMIqp2dh66_yAIVREwUCh2A8w
FU#v=onepage&q=narrow%20banking%20advantages
%20disadvantages&f=false [Accessed 16 Oct. 2015].

Mathews, D. (2015). Dodd-Frank isnt close to implemented. [online]

Washington Post. Available at:
http://www.washingtonpost.com/news/wonkblog/wp/2013/06/06/dodd-frankisnt-close-to-implemented [Accessed 16 Oct. 2015].

Harle, P. (2015). A regulatory squeeze on Europes banks?. [online] Mckinsey.com. Available at:
http://www.mckinsey.com/insights/financial_services/a_regulatory_squeeze_on_europes_banks
[Accessed 16 Oct. 2015].