"This paper studies the pros and cons of a consolidation of commercial banks (henceforth, CB) and investment banks (henceforth, IB), and the regulation scheme that would be desirable for a CB-IB co-evolution in the context of vertical or horizontal integration theory. The consolidation can contribute to expand market dominance or recoup losses among financial groups. But it may be abused as unfair assistances or tunneling methods, which might impair the fairness and stability of the financial market. Conglomerates of CB and IB should be permitted only if they do not impair the efficiency, fairness, and stability of the financial market. If not, however, an arm's length rule should be applied to the conglomerated financial group, which requires CB and IB to separate. Financial authorities should also consider restricting/prohibiting consolidated tax returns and introducing a double derivative action system to reduce fictitious capital problems in complex consolidation cases which are characterized by circular investment relationships."