Reforming the Banks: Popular Mobilization and Elite Control in the Politics of Bank Separation

The financial crisis of 2007-2008 triggered widespread calls for reorganizing the banking industry.  Most of the measures adopted by policymakers in Europe and the United States imposed incremental, if sometimes significant, changes in the rules by which banks competed.   The most prominent exception this incremental approach was the wide consensus among major market countries that customary activities such as deposit banking should be insulated from the higher-risk activities which banks had increasingly pursued through the 1990s and early 2000s.   Despite the shared goal, different countries adopted distinct legislative approaches for bank separation. 

The example that gained the most widespread attention occurred in the United States, where the “Volcker Rule” forced banks to spin off their proprietary trading activities.   Legislators in the other major market countries pursued other methods of achieving the same goal of bank separation.  This paper outlines the dimensions of bank separation and compares the approaches that policymakers took in the United States, Britain, Germany, and the European Union.   The paper then attempts to explain these outcomes by comparing interest-driven constellations and bureaucratic styles with explanations based on the political uses of expertise.   In particular, the analysis examines the politics among professional groups that sought to assert their professional authority over the types of knowledge involved in the sources of financial fragility that emerged in the years leading up to the crisis.