Universal banks are mega financial entities that offer commercial banking, investment banking, securities trading, insurance and other financial services. Different nations have different structures of universal banks. While there could be risk mitigation and economies of scale and scope through diversification of revenue streams, some argue that there could be diseconomies as well. Further, issues like `conflict of interest' and `too-big-to-fail' arise through universal banks.
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. |
