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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.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. 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.
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.
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.
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.
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.
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 herein.
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 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:
The global financial system is the worldwide framework of legal agreements, institutions, and both formal and informal economic actors that together facilitate international flows of financial capital for purposes of investment and trade financing. Since emerging in the late 19th century during the first modern wave of economic globalization, its evolution is marked by the establishment of central banks, multilateral treaties, and intergovernmental organizations aimed at improving the transparency, regulation, and effectiveness of international markets. In the late 1800s, world migration and communication technology facilitated unprecedented growth in international trade and investment. At the onset of World War I, trade contracted as foreign exchange markets became paralyzed by money market illiquidity. Countries sought to defend against external shocks with protectionist policies and trade virtually halted by 1933, worsening the effects of the global Great Depression until a series of reciprocal trade agreements slowly reduced tariffs worldwide. Efforts to revamp the international monetary system after World War II improved exchange rate stability, fostering record growth in global finance.
The Central Bank of Ireland is 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.
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.
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.
Bangladesh Bank is the central bank of Bangladesh and is a member of the Asian Clearing Union.
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.
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.
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".
The most important difference between non-banking financial companies and banks is that NBFCs don't take demand deposits. A non-banking financial institution (NBFI) or non-bank financial company (NBFC) is a financial institution that does not have a full banking license or is not supervised by a national or international banking regulatory agency. NBFI facilitate bank-related financial services, such as investment, risk pooling, contractual savings, and market brokering. Examples of these include insurance firms, pawn shops, cashier's check issuers, check cashing locations, payday lending, currency exchanges, and microloan organizations. Alan Greenspan has identified the role of NBFIs in strengthening an economy, as they provide "multiple alternatives to transform an economy's savings into capital investment which act as backup facilities should the primary form of intermediation fail."
A bank is a financial institution that accepts deposits and recurring accounts from the people and creates a demand deposit. 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, 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.
The Subprime mortgage crisis solutions debate discusses various actions and proposals by economists, government officials, journalists, and business leaders to address the subprime mortgage crisis and broader financial crisis of 2007–08.
The financial crisis of 2007–2008, also known as the global financial crisis (GFC), was a severe worldwide financial crisis. Excessive risk-taking by banks combined with a downturn in the subprime lending market in the United States culminated with the bankruptcy of Lehman Brothers on September 15, 2008 and an international banking crisis. The crisis sparked the Great Recession, a global recession, which, until the coronavirus recession, was the most severe recession since the Great Depression. It was also followed by the European debt crisis, which began with a deficit in Greece in late 2009, and the 2008–2011 Icelandic financial crisis.
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.
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