Universal bank

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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. [1] 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.

A commercial bank is a type of bank that provides services such as accepting deposits, making business loans, and offering basic investment products that is operated as a business for profit.

Financial services economic service provided by the finance industry

Financial services are the economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit-card companies, insurance companies, accountancy companies, consumer-finance companies, stock brokerages, investment funds, individual managers and some government-sponsored enterprises. Financial services companies are present in all economically developed geographic locations and tend to cluster in local, national, regional and international financial centers such as London, New York City, and Tokyo.

Insurance equitable transfer of the risk of a loss, from one entity to another in exchange for payment

Insurance is a means of protection from financial loss. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss.

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. In the US, this was a result of the Glass–Steagall Act of 1933. In 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 jurisdictions. However, at least until the global financial crisis of 2008, there remained a number of large, pure investment banks.

United Kingdom Country in Europe

The United Kingdom (UK), officially the United Kingdom of Great Britain and Northern Ireland, informally as Britain, is a sovereign country lying off the north-western coast of the European mainland. The United Kingdom includes the island of Great Britain, the north-eastern part of the island of Ireland and many smaller islands. Northern Ireland is the only part of the United Kingdom that shares a land border with another sovereign state, the Republic of Ireland. Apart from this land border, the United Kingdom is surrounded by the Atlantic Ocean, with the North Sea to the east, the English Channel to the south and the Celtic Sea to the south-west, giving it the 12th-longest coastline in the world. The Irish Sea lies between Great Britain and Ireland. With an area of 242,500 square kilometres (93,600 sq mi), the United Kingdom is the 78th-largest sovereign state in the world. It is also the 22nd-most populous country, with an estimated 66.0 million inhabitants in 2017.

United States Federal republic in North America

The United States of America (USA), commonly known as the United States or America, is a country composed of 50 states, a federal district, five major self-governing territories, and various possessions. At 3.8 million square miles, the United States is the world's third or fourth largest country by total area and is slightly smaller than the entire continent of Europe's 3.9 million square miles. With a population of over 327 million people, the U.S. is the third most populous country. The capital is Washington, D.C., and the largest city by population is New York City. Forty-eight states and the capital's federal district are contiguous in North America between Canada and Mexico. The State of Alaska is in the northwest corner of North America, bordered by Canada to the east and across the Bering Strait from Russia to the west. The State of Hawaii is an archipelago in the mid-Pacific Ocean. The U.S. territories are scattered about the Pacific Ocean and the Caribbean Sea, stretching across nine official time zones. The extremely diverse geography, climate, and wildlife of the United States make it one of the world's 17 megadiverse countries.

In 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 size tend to operate as universal banks, while smaller firms specialised as commercial banks or as investment banks. This is especially true of countries with a European Continental banking tradition. Notable examples of such universal banks include BNP Paribas, Crédit Agricole and Société Générale of France; Barclays, HSBC, RBS and Standard Chartered of the United Kingdom; Deutsche Bank of Germany; ING Bank of the Netherlands; Bank of America, Citigroup, JPMorgan Chase and Wells Fargo of the United States; RBC of Canada; and Credit Suisse and UBS of Switzerland. Examples of pure investment banks generally do not exist except in America, and include the Bank of New York Mellon, Goldman Sachs, and Morgan Stanley.

Continental Europe continent of Europe, excluding European islands

Continental or mainland Europe is the continuous continent of Europe, excluding its surrounding islands. It can also be referred to ambiguously as the European continent – which can conversely mean the whole of Europe – and by Europeans, simply the Continent.

BNP Paribas S.A. is a French international banking group. It is the world's 8th largest bank by total assets, and currently operates with a presence in 77 countries. It was formed through the merger of Banque Nationale de Paris (BNP) and Paribas in 2000, but has a corporate identity stretching back to its first foundation in 1848 as a national bank. It is one of three major international French banks, along with Société Générale and Crédit Agricole. The group is listed on the first market of Euronext Paris and a component of the Euro Stoxx 50 stock market index, while it also included in the French CAC 40 index.

Crédit Agricole French financial services company

Crédit Agricole Group, sometimes called "la banque verte" due to its historical ties to farming, is the worlds largest cooperative financial institution. It consists of a network of Crédit Agricole local banks, the 39 Crédit Agricole regional banks and a central institute Crédit Agricole S.A.. In 1990, it became an international full-service banking group. It is listed through Crédit Agricole S.A., an intermediate holding company, on Euronext Paris' first market and is part of the CAC 40 stock market index. Local banks of the group owned the regional banks, in turn the regional banks majority owned the S.A. via a holding company, in turn the S.A. owned part of the subsidiaries of the group, such as LCL, the Italian network and the CIB unit.

Universal banking and private banking often coexist, but can exist independently. The provision of many services by universal banks can lead to long-term relationships between universal banks and firms. [2]

Private banking is banking, investment and other financial services provided by banks to high-net-worth individuals (HNWIs) with high levels of income or sizable assets.

History

Following the 1907 financial crisis, the U.S. Monetary Commission wanted to understand the major financial systems of the world. A treatise by Jakob 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 Gerschenkron also advanced the hypothesis that universal banking was critical to Germany's industrialization. More recently, Emory University economist Caroline Fohlin has questioned the validity of the Gerschenkron hypothesis. [2]

Panic of 1907 three-week financial crisis in the United States

The Panic of 1907 – also known as the 1907 Bankers' Panic or Knickerbocker Crisis – was a United States financial crisis that took place over a three-week period starting in mid-October, when the New York Stock Exchange fell almost 50% from its peak the previous year. Panic occurred, as this was during a time of economic recession, and there were numerous runs on banks and trust companies. The 1907 panic eventually spread throughout the nation when many state and local banks and businesses entered bankruptcy. Primary causes of the run included a retraction of market liquidity by a number of New York City banks and a loss of confidence among depositors, exacerbated by unregulated side bets at bucket shops. The panic was triggered by the failed attempt in October 1907 to corner the market on stock of the United Copper Company. When this bid failed, banks that had lent money to the cornering scheme suffered runs that later spread to affiliated banks and trusts, leading a week later to the downfall of the Knickerbocker Trust Company—New York City's third-largest trust. The collapse of the Knickerbocker spread fear throughout the city's trusts as regional banks withdrew reserves from New York City banks. Panic extended across the nation as vast numbers of people withdrew deposits from their regional banks.

Alexander Gerschenkron was a Ukrainian-born American economic historian and professor at Harvard University, trained in the Austrian School of economics.

Emory University private research university in Druid Hills, Georgia, United States

Emory University is a private research university in Atlanta, Georgia. The university was founded as Emory College in 1836 in Oxford, Georgia, by the Methodist Episcopal Church and was named in honor of Methodist bishop John Emory. In 1915, Emory College moved to its present location in Druid Hills and was rechartered as Emory University. Emory maintained a presence in Oxford that eventually became Oxford College, a residential liberal arts college for the first two years of the Emory baccalaureate degree. The university is the second-oldest private institution of higher education in Georgia and among the fifty oldest private universities in the United States.

Related Research Articles

An investment bank is a financial services company or corporate division that engages in advisory-based financial transactions on behalf of individuals, corporations, and governments. Traditionally associated with corporate finance, such a bank might assist in raising financial capital by underwriting or acting as the client's agent in the issuance of securities. An investment bank may also assist companies involved in mergers and acquisitions (M&A) and provide ancillary services such as market making, trading of derivatives and equity securities, and FICC services. Most investment banks maintain prime brokerage and asset management departments in conjunction with their investment research businesses. As an industry, it is broken up into the Bulge Bracket, Middle Market, and boutique market.

Gramm–Leach–Bliley Act

The Gramm–Leach–Bliley Act (GLBA), also known as the Financial Services Modernization Act of 1999, is an act of the 106th United States Congress (1999–2001). It repealed part of the Glass–Steagall Act of 1933, removing barriers in the market among banking companies, securities companies and insurance companies that prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company. With the bipartisan passage of the Gramm–Leach–Bliley Act, commercial banks, investment banks, securities firms, and insurance companies were allowed to consolidate. Furthermore, it failed to give to the SEC or any other financial regulatory agency the authority to regulate large investment bank holding companies. The legislation was signed into law by President Bill Clinton.

The Glass–Steagall legislation describes four provisions of the United States Banking Act of 1933 separating commercial and investment banking. The article 1933 Banking Act describes the entire law, including the legislative history of the provisions covered here.

Banking in the United States

Banking in the United States began in the late 1790s along with the country's founding and has developed into highly influential and complex system of banking and financial services. Anchored by New York City and Wall Street, it is centered on various financial services namely private banking, asset management, and deposit security.

Financial institution institution that provides financial services for its clients or members

Financial institutions, otherwise known as banking institutions, are corporations that provide services as intermediaries of financial markets. Broadly speaking, there are three major types of financial institutions:

  1. Depository institutions – deposit-taking institutions that accept and manage deposits and make loans, including banks, building societies, credit unions, trust companies, and mortgage loan companies;
  2. Contractual institutions – insurance companies and pension funds
  3. Investment institutions – investment banks, underwriters, brokerage firms.
Central Bank of Ireland central bank of Ireland

The Central Bank of Ireland is the Republic of Ireland's central bank, and as such part of the European System of Central Banks (ESCB). It is the country's financial services regulator for most categories of financial firms. It was the issuer of Irish pound banknotes and coinage until the introduction of the euro currency, and now provides this service for the European Central Bank.

Bank regulation is a form of government regulation which subjects banks to certain requirements, restrictions and guidelines, designed to create market transparency between banking institutions and the individuals and corporations with whom they conduct business, among other things. As regulation focusing on key actors in the financial markets, it forms one of the three components of financial law, the other two being case law and self-regulating market practices.

A financial crisis is any of a broad variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults. Financial crises directly result in a loss of paper wealth but do not necessarily result in significant changes in the real economy.

Financial sector development in developing countries and emerging markets is part of the private sector development strategy to stimulate economic growth and reduce poverty. The Financial sector is the set of institutions, instruments, and markets. It also includes the legal and regulatory framework that permit transactions to be made through the extension of credit. Fundamentally, financial sector development concerns overcoming “costs” incurred in the financial system. This process of reducing costs of acquiring information, enforcing contracts, and executing transactions results in the emergence of financial contracts, intermediaries, and markets. Different types and combinations of information, transaction, and enforcement costs in conjunction with different regulatory, legal and tax systems have motivated distinct forms of contracts, intermediaries and markets across countries in different times.

Retail banking, also known as consumer banking, is the provision of services by a bank to the general public, rather than to companies, corporations or other banks, which are often described as wholesale banking. Banking services which are regarded as retail include provision of savings and transactional accounts, mortgages, personal loans, debit cards, and credit cards. Retail banking is also distinguished from investment banking or commercial banking. It may also refer to a division or department of a bank which deals with individual customers.

Cooperative banking

Cooperative banking is retail and commercial banking organized on a cooperative basis. Cooperative banking institutions take deposits and lend money in most parts of the world.

Banking, financial services and insurance (BFSI) is an industry term for companies that provide a range of such financial products/services, such as universal banks. BFSI comprises commercial banks, insurance companies, non-banking financial companies, cooperatives, pensions funds, mutual funds and other smaller financial entities.

The shadow banking system is a term for the collection of non-bank financial intermediaries that provide services similar to traditional commercial banks but outside normal banking regulations. The phrase "shadow banking" contains the pejorative connotation of back alley loan sharks. Many in the financial services industry find this phrase offensive and prefer the euphemism "market-based finance".

Bank financial institution

A bank is a financial institution that accepts deposits from the public and creates credit. Lending activities can be performed either directly or indirectly through capital markets. Due to their importance in the financial stability of a country, banks are highly regulated in most countries. Most nations have institutionalized a system known as fractional reserve banking under which banks hold liquid assets equal to only a portion of their current liabilities. In addition to other regulations intended to ensure liquidity, banks are generally subject to minimum capital requirements based on an international set of capital standards, known as the Basel Accords.

Regulatory responses to the subprime crisis addresses various actions taken by governments around the world to address the effects of the subprime mortgage crisis.

Financial crisis of 2007–2008 Global financial crisis

The financial crisis of 2007–2008, also known as the global financial crisis and the 2008 financial crisis, is considered by many economists to have been the most serious financial crisis since the Great Depression of the 1930s.

This article is about the decline of the effect of Glass–Steagall: legislation, limits, and loopholes.

The Glass–Steagall legislation was enacted by the United States Congress in 1933 as part of the 1933 Banking Act, amended as part of the 1935 Banking Act, and most of it was repealed in 1999 by the Gramm–Leach–Bliley Act (GLBA). Its protections and restrictions had also been chipped away during most of its existence by lenient regulatory interpretations and use of loopholes. After Glass–Steagall's 1999 repeal, there was a great deal of discussion in the banking and securities industries, and among policymakers and economists, about the practical positive and negative changes to the business and consumer environment. Later, as financial crises and other issues played out in the United States and even worldwide, arguments have broken out about whether Glass–Steagall, as originally intended, would have prevented these issues.

References

  1. "Investment Banking—Is There a Future?", September 18, 2008, The Economist
  2. 1 2 Fohlin, C. Finance Capitalism and Germany's Rise to Industrial Power.