Universal Banking

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UNIVERSAL BANKING: AS A CONCEPT

The term 'universal banks' in general refers to the combination of commercial banking and investment banking, i.e., issuing, underwriting, investing and trading in securities. In a very broad sense, however, the term 'universal banks' refers to those banks that offer a wide range of financial services, beyond commercial banking and investment banking, such as, insurance. However, universal banking does not mean that every institution conducts every type of business with every type of customer. Universal banking is an option; a pronounced business emphasis in terms of products, customer groups and regional activity can, in fact, be observed in most cases. In the spectrum of banking, specialised banking is on the one end and the universal banking on the other.

Universal banks are financial institutions that may offer the entire range of financial services. They may sell insurance, underwrite securities, and carry out securities transactions on behalf of others. They may own equity interest in firms, including nonfinancial firms.

They are multi-product firms in the financial services sector whose complexity is difficult to manage. In their historical development, organisational structure, and strategic direction, universal Banks constitute multi-product firms, within the financial services sector. This stylized profile of universal banks presents shareholders with an anagram of more or less distinct businesses that are linked together in a complex network which draws on as set of centralised financial, information, human and organisational resources - a profile that tends to be extraordinarily difficult to manage in a way that achieves optimum use of invested capital.

Economics of Universal Banking:
From a production -function perspective, the structural form of universal banking appears to depend on the ease with which operating efficiencies and scale and scope economies can be exploited - determined in large part by product and process technologies - as well as the comparative organisational ...