Universal banks are generally large banks with
extensive network of branches that provide many
different financial services and are principally
engaged in commercial banking, investment banking,
securities and even insurance. They invest in the equity
and debt of the corporates and may even participate directly
in the corporate governance of the firms that rely on the
banks as sources of funding or securities underwriters.
Universal banks with some variations in structures,
have been functioning in the United States, Europe, and
Japan. India can also boast of joining the bandwagon as
SBI, ICICI Bank and IDBI may now be termed as universal
banks.
There are many drivers that triggered the setting up
of universal banks. Globalization of banking, deregulation
of economies, liberalization of trade, capital and labor
movements, the imperatives of competition, the concern
for financial stability and more importantly, access to
superior technology in financial services are some such
drivers. Cross selling opportunities need a special mention
here.
Financial economists observe that universal banks have
evolved over a period of time and seemingly different
functions like commercial banking, investment banking
and securities trading have been consolidated to create a
superstructure of financial services. Insurance business
is a late entry in this convergence effort. In creating the
mega universal banks, bankers felt that there could be
economies of scale and scope, efficiency in risk
management, improvement in operating efficiencies,
improved financial stability through diversification of
revenue streams, etc. They also felt that these mega
structures, aided by technology could become formidable
and very competitive. Further, universal banks could be
perceived as ‘Too-big-to-fail’ (TBTF) institutions and may
enjoy the attendant advantages like being the regulator
or the government bailing them out of a crisis situation.
Not every banker or analyst agrees with this line of thinking. |
