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The separation and subsequent segregation of the different areas of a bank based on their core activities, with severe penalties (break-up) if a bank decides not to follow the established legislation.

This requirement says that banks can no longer maintain a unified balance and, therefore, core capital levels, for the entire organization. Instead, they must separate their "marketmaking" activities from the retail branch of the bank from the "proprietary trading" activities of the investment branch of the bank. This is what it means "to ring-fence" or, in other words, to close off and separate different parts of a bank based on the type of activities they are usually engaged in.

If a bank does not comply with these rules or decides to try to cheat the system, the banking authority will have the power to "electrify" them or, in other words, to severely punish the bank for its wrongdoings and formally break up the bank into smaller pieces that would no longer be able to operate within the same organisation. This has caused much turmoil in the banking world because of the costs related to this type of forced restructuration. These new rules are supposed to eliminate some of the unnecessary operational risk that some banks cause for themselves while also protecting taxpayers from having to bailout the banks when they are in deep financial trouble. Countries like the Great Britain, Germany, France and, to some extent, the U.S. have created legislation to this effect.