Essay on Universal Bank And The Banking System

Essay on Universal Bank And The Banking System

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According to Cheang (2004), the universal bank can be defined as the banking system in which the bank offer the whole variety of financial products and services. He also states that it combines both investment banking and commercial banking, for example, lending and taking a deposit, selling insurance, issuing underwriting, investing and trading in securities. To me therefore, the universal bank refers to the banking system which operates completely financial services like a supermarket.
It is impossible to against with the universal banking system. This essay is divided into two sides: the banking side and the customer side. I would argue that both banks and customers need the universal bank. This essay will discuss why both need the universal bank.
Regarding the banking side, there is the cost reduction of the universal bank from economies of scope. According to Spencer (2011), he looks at what scope economies provide to the universal bank. He states that the bank could reduce average per unit costs from spreading their overhead costs across a complementary range of services which it could get higher profit margin on each unit sold, and increase in market shares. Additionally, Shull and White (1998) state that economising costs occurs from sharing of resources such as standard facilities, informational clients, brand name, and knowledge. They think that the total cost could be lowered. Similarly, Schildbach et al (2012) indicate that the universal bank could reduce overall cost by joint utilisation of inputs, and generate more profit. Clark (1998) take an example that the information collected from servicing a customer’s deposits and loans may be reused. As the cost of reusing information is usually less than the independent co...

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...ccording to Schildbach et al (2012), he states that the universal bank can build customers’ and investors’ trust that it can protect their money when facing the crisis. Meanwhile, in a book by House of Commons Treasury Committee (2011, p.74), from interviews of Jenkins, Chief Executive, Global Retail of Barclays gave evidence that one of the things that she saw through the crisis was that clients brought their money to Barclays because they had full confidence in Barclays. Personally, whether in term of the convenience including timesaving and transaction costs reduction, and the stability of bank are needed for customers. Therefore, the universal bank is the right answer for them.
In conclusion, based on the consideration given above, it is apparently that both banks and customers need the universal bank because of scope economies, the stability, and the convenience.

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