I think that even after breaking up the banks, the financial system would be characterised by a large degree of interconnectedness. And again, we could take a look into history. Lehman Brothers was a pure investment bank, yet when it failed in 2008 it brought the financial system to the brink of collapse – because it was so interconnected.
Against this backdrop, the question is: what would happen if another pure investment bank were to fail? Would the government really just stand on the side-lines and watch the potential fallout? Or would it be compelled to step in, as it has done before, to save the failing bank – regardless of whether it is attached to a commercial bank or not?