ERM Frameworks and Responses to risk [42]

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Bullet points include: Distinguish between Narrow banking – classic retail and commercial banking: regulated, insured Investment banking – risky trading activities: unregulated, unsupported in crisis But complication Pure investment banking firms still systemically important (Bear Sterns) Undiversified narrow banks can be risky: Northern Rock, Indy Mac, WAMU Global economy needs complex global finance capabilities So way forward Not complete separation But capital and liquidity policy constraints on risky activity Commercial banks focused on serving customer needs

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