The major advantage of the scheme is that it dovetails with other reforms under development in Basel. A retail ring-fence makes most sense if coupled with new a new resolution regime, which would allow a retail subsidiary to be wound up without contagion across the group. If efforts to allow bondholders to share the pain are also successful, we might be within sight of a sensible and not-too-costly reform with which the market can make peace—and which regulators would have a realistic chance of managing.
Those who want the banks "cut down to size," even if it is a case of cutting off one's nose to spite one's face, are not happy with Vickers. But, by providing an honest, rigorous assessment of the major reform proposals, the commission has performed an invaluable service and deserves recognition for a job elegantly done.
This article comes from Project Syndicate.