Universal Banking

A universal bank participates in many

kinds of banking activities and is both
a commercial bank and an investment
bank as well as providing other
financial services such as insurance .
These are also called full-service
financial firms, although there can also
be full-service investment banks which
provide asset management, trading,
and underwriting.

History
Following the 1907 financial crisis , the
U.S.Monetary Commission wanted to
understand the major financial systems of the
world. A treatise by Jacob Riesser, the director
of a Berlin bank, argued that the German
universal banking system possessed beneficial
characteristics that allowed it to efficiently
provide inexpensive capital to industry and
promote growth. Alexander Gerschen kron also
advanced the hypothesis that universal banking
was critical to Germany's industrialization. More
recently, Caroline Fohlin has questioned the
validity of the Gerschenkron hypothesis.

Advantages

Investors' Trust
Economies of scale
Resource utilisation
Profitable diversification
Easy marketing
One stop shopping

Disadvantages

Different rules & regulations

Effect of failure on banking system
Monopoly
Conflict of interest

UNIVERSAL BANKING IN
INDIA

In India Development financial institutions

(DFIs)and refinancing institutions (RFIs) were
meeting specific set oral needs and also
providing long-term resources at concessional
terms, while the commercial banks in general,
by and large , confined themselves to the core
banking functions of accepting deposits and
providing working capital finance to industry,
trade and agriculture. Consequent to the
liberalization and deregulation of financial
sector, there has been blurring of distinction
between the commercial banking and
investment banking.

 Reserve Bank of India constituted on

December 8,1997, a Working Group under the
Chairmanship of Shri S.H. Khan to bring about
greater clarity in the respective roles of banks
and financial institutions for greater
harmonization of facilities and obligations .
The issue of universal banking resurfaced in
Year2000, when ICICI gave a presentation to
RBI to discuss the time frame and possible
options for transforming itself into an universal
bank.
Now RBI has asked FIs, which are interested to
convert itself into a universal bank, to submit
their plans for transition to a universal bank
for consideration and further discussions.

Operational & Regulations Issues

of RBI by the Fi's for conversion

Reserve requirements
Licensing
Assets in India
Branch network
Deposit of insurance
Prudential norms

THE FUTURE TREND OF UNIVERSAL

BANKING INDIFFERENT COUNTRIES
Universal banks have long played a
leading role in Germany, Switzerland, and
other Continental European countries. The
principal Financial institutions in these
countries typically are universal banks
offering the entire array of banking
services. Continental European banks are
engaged in deposit, real estate and other
forms of lending, foreign exchange
trading, as well as underwriting, securities
trading, and portfolio management.

 First, universal banks no doubt will continue to

play an important role. Economies are
especially important for banks operating on
global scale and catering to customers with a
need for highly sophisticated financial services.
Second , although universal banks have
expanded their sphere of influence, the smaller
specialized institutions have not disappeared. In
both Germany and Switzerland, they are
successfully coexisting and competing with the
big banks. In Switzerland, for example, the
specialized institutions are firmly entrenched in
such areas as real estate lending, securities
trading, and portfolio management

 Third , universality of banking may be

achieved in various ways. No single type of
universal banking system exists. The
German and Swiss universal banking
systems differ substantially in this regard. In
Germany, universality has been
strengthened without significantly
increasing the market shares of the big
banks. Instead, the smaller institutions have
acquired universality through cooperation.