What is Universal Banking’
Universal banking system in which banks provide a wide range of financial services including commercial and investment services. Universal banking is common in some European countries, including Switzerland. In the United States, however, banks must separate their commercial and investment banking. Proponents of universal banking argue that it helps banks to better diversify risks. Detractors thought of the division of Bank operations is a less risky strategy.
Breaking down the ‘Bank’
Universal banks can provide credit, loans, deposits, trust management, investment advising, payments, operations with securities, underwriting and financial analysis. In a universal banking system allows banks to offer a variety of services, it does not require them to do so. Banks in universal system can still choose a specialization in a subset of banking services.
Universal banking combines the services of a commercial Bank and an investment Bank that provides all types of services in one organization. These services may include Deposit accounts, various investment services and can even provide insurance services. Deposit accounts under the universal Bank may include savings and checking.
Under this system, banks can participate in any or all of the permitted activities. It is expected that they will comply with all the principles that govern or direct the proper management of assets and operations. Because not all companies participate in the same activities, the rules of the game may vary from one institution to another.
It is important not to confuse the concept of “universal Bank” with any financial institutions with similar names.
Universal banking in the United States
Because of strict regulation, a universal Bank were commonplace in the United States. This is due to the glass-Steagall act of 1933. Recent events removed a number of barriers to the creation of a universal Bank, although they are still not as common as they are in many European countries. Further, in the US there are banks that focus purely on investments, which are very common in the rest of the world.
The impact of the financial crisis of 2008
The financial crisis of 2008 has led to a number of failures in the investment banking system in the United States. This led to the acquisition or bankruptcy of the various organizations. Some famous examples include the “Lehman brothers” and “Merrill Lynch”.
Examples of universal banks
Some of the most notable universal banks include Deutsche Bank, HSBC and ING Bank. In the US, Bank of America, Wells Fargo and Houston JPMorgan chase to qualify as universal banks.