Universal Banking 1
Chapter 1
INTRODUCTION
(i) MEANING & DEFINITIONS:
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 wealth and asset management, trading, underwriting, researching as well as financial
advisory.
The concept is most relevant in the United Kingdom and the United States, where historically
there was a distinction drawn between pure investment banks and commercial banks. n the US, this
was a result of the !lass"Steagall Act of #$%%. n both countries, however, the regulatory barrier to
the combination of investment banks and commercial banks has largely been removed, and a number
of universal banks have emerged in both &urisdictions. 'owever, at least until the global financial
crisis of ())*, there remained a number of large, pure investment banks.
n other countries, the concept is less relevant as there is no regulatory distinction between
investment banks and commercial banks. Thus, banks of a very large si+e tend to operate as universal
banks, while smaller firms speciali+ed as commercial banks or as investment banks. This is especially
true of countries with a ,uropean -ontinental banking tradition. .otable e/amples of such universal
banks include 0.1 1aribas, -redit and Society !eneral of 2rance3 'S0-, Standard
-hartered and 40S and 0arclays of the United Kingdom3 5eutsche 0ank of !ermany3 .! 0ank of
the .etherlands3 0ank of America, -itigroup, 617organ -hase and 8ells 2argo of the United States3
and U0S and -redit Suisse of Swit+erland. ,/amples of pure nvestment 0anks generally don9t e/ist
e/cept in America like !oldman Sachs and 7organ Stanley.
Universal banking and private banking often coe/ist, but can e/ist independently. The
provision of many services by universal banks can lead to long-term relationships between universal
banks and firms.
Accordin to In!e"topedia,: banking system in which banks provide a wide variety of
financial services, including both commercial and investment services. Universal banking is common
in some ,uropean countries, including Swit+erland. n the United States, however, banks are re;uired
to separate their commercial and investment banking services. 1roponents of universal banking argue
that it helps banks better diversify risk. 5etractors think dividing up banks9 operations is a less risky
strategy.
Universal Banking 2
Universal banks may offer credit, loans, deposits, asset management, investment advisory,
payment processing, securities transactions, underwriting and financial analysis. 8hile a universal
banking system allows banks to offer a multitude of services, it does not re;uire them to do so. 0anks
in a universal system may still choose to speciali+e in a subset of banking services:
Accordin to Genera# $no%#ede Toda& (Maa'ine),: Universal banking is a system of
banking where banks undertake a blanket of financial services like investment banking, commercial
banking, development banking, insurance and other financial services including functions of merchant
banking, mutual funds, factoring, housing finance, insurance etc. n simple words, Universal 0anking
means that 2inancial nstitutions n Universal
banking, the large banks operate e/tensive network of branches, provide many different services, hold
several claims on firms
Demand Deposits, also known as current accounts.
These are repayable on demand without any notice. Usually no interest is paid on them because
the banks cannot utili+e short-term deposits and must keep almost cent per cent reserve against
them. In the other hand, a little commission is charged for the service rendered. Iccasionally, a
small interest is paid to the people who keep large balances.
Fi
Chapter 1
INTRODUCTION
(i) MEANING & DEFINITIONS:
A universal bank participates in many kinds of banking activities and is both a commercial
bank and an investment bank as well as providing other financial services such as insurance. These
are also called full-service financial firms, although there can also be full-service investment banks
which provide wealth and asset management, trading, underwriting, researching as well as financial
advisory.
The concept is most relevant in the United Kingdom and the United States, where historically
there was a distinction drawn between pure investment banks and commercial banks. n the US, this
was a result of the !lass"Steagall Act of #$%%. n both countries, however, the regulatory barrier to
the combination of investment banks and commercial banks has largely been removed, and a number
of universal banks have emerged in both &urisdictions. 'owever, at least until the global financial
crisis of ())*, there remained a number of large, pure investment banks.
n other countries, the concept is less relevant as there is no regulatory distinction between
investment banks and commercial banks. Thus, banks of a very large si+e tend to operate as universal
banks, while smaller firms speciali+ed as commercial banks or as investment banks. This is especially
true of countries with a ,uropean -ontinental banking tradition. .otable e/amples of such universal
banks include 0.1 1aribas, -redit and Society !eneral of 2rance3 'S0-, Standard
-hartered and 40S and 0arclays of the United Kingdom3 5eutsche 0ank of !ermany3 .! 0ank of
the .etherlands3 0ank of America, -itigroup, 617organ -hase and 8ells 2argo of the United States3
and U0S and -redit Suisse of Swit+erland. ,/amples of pure nvestment 0anks generally don9t e/ist
e/cept in America like !oldman Sachs and 7organ Stanley.
Universal banking and private banking often coe/ist, but can e/ist independently. The
provision of many services by universal banks can lead to long-term relationships between universal
banks and firms.
Accordin to In!e"topedia,: banking system in which banks provide a wide variety of
financial services, including both commercial and investment services. Universal banking is common
in some ,uropean countries, including Swit+erland. n the United States, however, banks are re;uired
to separate their commercial and investment banking services. 1roponents of universal banking argue
that it helps banks better diversify risk. 5etractors think dividing up banks9 operations is a less risky
strategy.
Universal Banking 2
Universal banks may offer credit, loans, deposits, asset management, investment advisory,
payment processing, securities transactions, underwriting and financial analysis. 8hile a universal
banking system allows banks to offer a multitude of services, it does not re;uire them to do so. 0anks
in a universal system may still choose to speciali+e in a subset of banking services:
Accordin to Genera# $no%#ede Toda& (Maa'ine),: Universal banking is a system of
banking where banks undertake a blanket of financial services like investment banking, commercial
banking, development banking, insurance and other financial services including functions of merchant
banking, mutual funds, factoring, housing finance, insurance etc. n simple words, Universal 0anking
means that 2inancial nstitutions n Universal
banking, the large banks operate e/tensive network of branches, provide many different services, hold
several claims on firms
Demand Deposits, also known as current accounts.
These are repayable on demand without any notice. Usually no interest is paid on them because
the banks cannot utili+e short-term deposits and must keep almost cent per cent reserve against
them. In the other hand, a little commission is charged for the service rendered. Iccasionally, a
small interest is paid to the people who keep large balances.
Fi