Universal Banking

What is 'Universal Banking'

Universal banking is a banking system in which banks provide a wide variety of financial services, including commercial and investment services. Universal banking is common in some European countries, including Switzerland. In the United States, however, banks are required to separate their commercial and investment banking services. Proponents of universal banking argue that it helps banks better diversify risk. Detractors think dividing up banks' operations is a less risky strategy.

BREAKING DOWN 'Universal Banking'

Universal banks may offer credit, loans, deposits, asset management, investment advisory, payment processing, securities transactions, underwriting and financial analysis. While a universal banking system allows banks to offer a multitude of services, it does not require them to do so. Banks in a universal system may still choose to specialize in a subset of banking services.

Universal banking combines the services of a commercial bank and an investment bank, providing all services from within one entity. The services can include deposit accounts, a variety of investment services and may even provide insurance services. Deposit accounts within a universal bank may include savings and checking.

Under this system, a bank can choose to participate in any or all of the permitted activities. They are expected to comply with all guidelines that govern or direct proper management of assets and transactions. Since not all institutions participate in the same activities, the regulations in play may vary from one institution to another.

It is important not to confuse the term "universal bank" with any financial institutions with similar names.

Universal Banking in the United States

Due to strict regulation, the universal bank is was a common occurrence within the United States. This is due to the Glass-Steagall Act of 1933. Recent developments have removed a number of the barriers to the creation of a universal bank, though they are still not as prevalent as they are across many European countries. Further, the United States has banks that focus purely on investments, which is highly uncommon in the rest of the world.

Impact of the 2008 Financial Crisis

The 2008 financial crisis led to a number of failures within the investment banking system in the United States. This led to the acquisition or bankruptcy of a variety of institutions. Some notable examples include Lehman Brothers and Merrill Lynch.

Examples of Universal Banks

Some of the more notable universal banks include Deutsche Bank, HSBC and ING Bank. Within the United States, Bank of America, Wells Fargo and JPMorgan Chase qualify as universal banks.

RELATED TERMS
  1. Bank

    A financial institution licensed as a receiver of deposits. There ...
  2. Business Banking

    A company's financial dealings with an institution that provides ...
  3. State Bank

    A financial institution that has been chartered by a state to ...
  4. Limited Service Bank

    Any type of banking business facility that is located separately ...
  5. Bankers' Bank

    A special type of bank that is created by a group of banks. Bankers' ...
  6. Retail Banking

    Typical mass-market banking in which individual customers use ...
Related Articles
  1. Managing Wealth

    Retail Banking Vs. Corporate Banking

    Retail banking is the visible face of banking to the general public. Corporate banking, also known as business banking, refers to the aspect of banking that deals with corporate customers.
  2. Markets

    What's a Commercial Bank?

    A commercial bank is a type of financial institution that accepts deposits, offers checking account services, makes business, personal and mortgage loans; and offers basic financial products ...
  3. Investing

    What's a Correspondent Bank?

    A correspondent bank is a bank that acts on behalf of another bank, usually a foreign bank.
  4. Investing

    What is a Bank?

    A bank is a financial institution licensed to receive deposits or issue new securities to the public.
  5. Markets

    A Brief History of U.S. Banking Regulation

    From the establishment of the First Bank of the United States to Dodd-Frank, American banking regulation has followed the path of a swinging pendulum.
  6. Investing

    The Pros And Cons Of Internet Banks

    Learn how internet banking services stack up against those of their brick-and-mortar peers.
  7. Managing Wealth

    Career Advice: Investment Banking Vs. Commercial Banking

    Read an in-depth review of the differences between a career in investment banking and a career in commercial banking, including how to decide between them.
  8. Trading

    Key Financial Ratios to Analyze Retail Banks

    Learn about key financial metrics that investors use to evaluate retail banks, and how the industry is fundamentally different from most other industries.
  9. Markets

    What Are Central Banks?

    They print money, they control inflation, and much, much more. All you need to know about central banks is here.
  10. Markets

    What Does a Central Bank Do?

    A central bank oversees a nation’s monetary system.
RELATED FAQS
  1. How does investment banking differ from commercial banking?

    Discover how investment banking differs from commercial banking, the responsibilities of each and how the two can be combined ... Read Answer >>
  2. What's the difference between investment banks and commercial banks?

    Understand the principal differences between investment banks and commercial banks, and the areas of banking services that ... Read Answer >>
  3. What factors are the primary drivers of banks' share prices?

    Find out which factors are most important when determining the share price of banks and other lending institutions in the ... Read Answer >>
  4. What are the main reasons an investor should consider an allocation to the banking ...

    Learn about investment opportunities in the commercial and investment banking industry. Find out why many investors choose ... Read Answer >>
  5. What developed countries have the highest concentration in the banking sector?

    Learn about the developed countries that have the greatest concentration in the banking sector and the most important emerging ... Read Answer >>
  6. How do investment banks help the economy?

    Learn more about the functions of investment banks in a modern economy and how investment banks have been treated differently ... Read Answer >>
Hot Definitions
  1. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  2. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  3. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  4. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  5. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  6. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
Trading Center