The US Banking Act of 1933 established the Federal Deposit Insurance Corporation and introduced banking reforms, notably the prohibition on a bank holding company from owning other financial institutions. The common name of the Act was the Glass-Steagall Act, after its legislative sponsors, Carter Glass and Henry B Steagall. The Act was repealed in 1999 and effectively removed the separation that previously existed between Wall Street investment banks and traditional deposit taking banks.

Following the recent financial crisis, the debate concerning Glass-Steagall legislation has surfaced once again. In the UK the Chancellor of the Exchequer announced in June 2010 the creation of an Independent Commission on Banking, chaired by Sir John Vickers. The Commission is expected to present a final report in September this year which will set out a number of policy recommendations concerning structural measures to reform the UK banking system, including the complex and controversial issue of separating retail and investment banking functions.

On 24 September 2010, the Commission published a call for evidence on issues relating to the structure of the UK banking sector. In January, the Commission published the responses to the call which showed that respondents were divided over whether retail and investment banking should be split. Some respondents favoured a split because they felt that the "too big to fail" guarantee of universal banks distorted the market; whilst others favoured a split because they felt that there should be separation of risk and reward for universal bank employees risking shareholder capital, which did not exist with the funding subsidy provided by retail deposits. However, some respondents argued against a split, for a variety of reasons including the impact on businesses needing access to a range of complex financial products as well as more basic services.

Also in January, Sir John Vickers gave a speech in which he discussed the Commission's work and the broader question of whether, and if so how, structural reforms might relate to other reform initiatives, especially those to enhance banks' capital structures and the credibility of their recovery and resolution plans to cope with crisis. Interestingly, in his concluding remarks Sir John said: “The observation is that, if forms of separation were thought desirable in terms of public policy, there would be the further question of whether they should be required of the institutions concerned, or incentivised, for example by appropriately different capital requirements for different business models. Riskier structures need deeper foundations."

The Commission held its latest meeting on 8 March and has confirmed that it will now publish an interim report on 11 April. The interim report will provide a useful steer as to what recommendations the Commission will make in its final report. Many are sceptical and feel that a Glass-Steagall type Act will not be recommended and even if it is it is doubtful that the government will push through such legislation. However, as Sir John Vickers noted in his speech, if such legislation is advocated it needs to be thought through particularly in terms of capital structures.