ABSTRACT
The bank structural problem is at the centre of current world wide regulatory reform. The structural problem came about within the context of global lax monetary policy, financial liberalisation, and the encouragement of financial innovation both from policy-makers and the financial industry. Due to the interconnectedness and homogeneity of banks, the failure of a few entities instantly contaminated all relevant entities in the product chain and the industry as a whole. The Too big to fail (TBTF) bank structural problem emerged within the context of the lax macroeconomic policies and the trend for financial innovation. In the US, the financial deregulation and liberalisation legislation dated back to the Banking Act of 1933 and the subsequent amendment in 1935. With the universal banking model developing and banks becoming larger and larger, interconnectedness was another very prominent characteristic of the pre-crisis banking industry in the EU. The interbank link was another source of the banking sector interconnectedness.
