Our conclusion based on the evidence was that our regulatory recommendations would not cause a loss of efficiency to the extent that would outweigh the increased stability of banks gained by structural regulation. One central problem whose consideration within our group was affected by the research literature was the question of how to treat market making.
In his research on the United States’ Volcker Rule, Stanford University Professor Darrell Duffie drew attention to the difficulty in practical monitoring work in separating market making activities from proprietary trading. Duffie recommended the regulation of market making primarily through prudential and liquidity regulations, or alternatively, by separation of this activity from the core bank through “ring-fencing” (Duffie 2012).