Bank ring-fencing is the attempt to separate ‘higher risk’ banking activities from those activities seen to be more socially useful to the real economy. It is also an important post-crisis regulatory response to the moral hazard dilemma surrounding Too Big To Fail banks. Since national governments bore the worst of the costs of rescuing the largest banks it is therefore reasonable to assume that the authorities would have the greatest incentive to promote tough ring-fence reform. In confrontation with the EU’s Liikanen Group and the EU Commission however, France and Germany established a weaker set of national reforms. Our article asks why these national governments pursued a set of laws that were more accommodating to their largest banks than the EU proposals? We argue that France and Germany were defending market-based banking in their largest universal banks. What is most significant though is that they were therefore defending the ability of their largest banks to hold large volumes of trading assets which, in the view of the EU Commission and others, was a major cause of the financial crisis. Our conclusions have important implications for the Varieties of Capitalism literature and suggest that the direction of change in these countries will continue to be towards further market-based banking, despite the associated costs revealed by the crisis.