Convergence in the Financial Services - Essay Example

vertrading and aggressive positions taken by the trading and asset management entities of the financial conglomerate (FC), though accounting for only a segment of the FC’s activities and revenues, tends to expose the entire group to high risks that were not contemplated, particularly by the multitude of individual depositors and consumer loans clientele that are served by the financial intermediation function of the group. In Europe, the regulatory instrument governing FCs is the Financial Conglomerate Directive, an act of the European Parliament that commands the compliance of banks through the European Union.

The Commission has continually conducted consultation sessions and surveys among any and all parties taking interest in the activities of FCs, including the conglomerates themselves. The latest consultation effort elicited insightful and indepth responses from the various respondents, the result thereof highlighting concerns about inequities between sectors in an FC that unduly cause competition for capital, confusion in legal structure, problems in the scope of supplementary supervision of unregulated entities, and absence of a level playing field.

The first chapter of this dissertation introduces the subject of research and the contextual background through which it should be viewed. The framework for discussion is also briefly indicated, as well as the issues intended to be analyzed pursuant to the consultative document and feedback responses of the different subject institutions. Since the Great Depression in the U.S. and for eight years thereafter, the Glass-Steagall Act imposed the firewall between financial institutions involved in banking and those involved in non-banking financial services (Crockett, et al, 2003; Fein, 2001).

However, in 1999 the Gramm-Leach-Biley Act was passed repealing Glass-Steagall and thus allowing firms to engage in both bank and non-bank function, due to “increasingly persuasive” evidence that liberalizing the