Moreover, as intra-group financing and subsidies between the deposit bank and the trading entity will be strictly limited, there will be fewer channels of contagion. Limits on trading activities will also reduce the counterparty risks of deposit banks. Thirdly, simpler structures can make it easier for the management and board to understand and manage, and for outsiders to monitor and supervise, banking institutions.
This can enhance the effectiveness of both market discipline and financial supervision. Fourthly, separating deposit banking and trading entities can also reduce the mixing of the two different management cultures.