The Banking/Commercial Separation Doctrine in Comparative Perspective

This report, prepared for the Department of Finance, Government of Canada, summarizes research undertaken across five jurisdictions – Australia, Japan, Singapore, the United Kingdom (UK), and the United States (US, federal level only) – with respect to a particular kind of boundary on the business of banking: the separation of banking business from commercial business. “Commercial” here means the provision of non-financial goods and services. This separation exists under what in the United States has long been referred to as the “banking/commercial separation doctrine”. The report considers the historical justifications for the doctrine in the context of the modern “business of banking”, which has changed radically over the past 30 years. It argues that the doctrine has become anachronistic. It carefully considers the regimes in jurisdictions like the UK and Australia, which have no equivalent doctrine. However, the report also argues that the systemic risk and consumer protection concerns that produced the banking/commercial separation doctrine are as real as ever. The report argues for regulating systemic risk and consumer protection risks directly and explicitly, in an evidence-based fashion, rather than relying on the proxy of a blunt, bright-line rule like the separation doctrine.