Reconsidering the Separation of Banking and Commerce

This Article examines the long-held belief that banking and commerce need to be kept separate to ensure a stable banking system. Specifically, the Article criticizes the Bank Holding Company Act (“BHCA”), which prohibits nonbanking entities from owning banks. The recent banking collapse has caused and exacerbated several problematic trends in U.S. banking, especially the conglomeration of banking entities and the homogenization of assets. The inflexible and outdated provisions of the BHCA are a major cause of these trends. Since the enactment of the BHCA, the landscape of U.S. banking has changed dramatically, but the strict separation of banking and commerce embodied in the BHCA does not reflect these changes. This Article argues that allowing commercial firms to own banks could lead to a more diversified and less risk-prone financial structure, and gives examples of possible changes and potential ownership structures that could reduce risks in the financial system