Page 8 of 19  Chart 2: Potential losses and mitigants  To be met by provisions  To be met by capital  Partly covered by deposit insurance  While it can be argued that the quantum of capital to be held by banks for unexpected loss should be left to the market forces, any failure of the market forces has significant negative externalities, more particularly in the form of cost incurred through loss of deposits or by taxpayers for recapitalising, say a government owned bank.
At the same time, we wanted to preserve the universal banking model that, by and large, has well served the European economy. Given these starting points, we proposed a mandatory separation of a deposit entity and a trading entity within a banking group. Based on this recommendation, the European Commission presented its proposal for the Regulation on structural measures January this year.