In recent years, universal banking has been growing its reputation in Indonesia. Mandiri Bank, for example, has taken strategy being Indonesia's universal bank; this bank has also initiated to develop an integrated financial risk system in terms of sounding financial performance and increasing shareholder value. In Germany, and most created countries in Europe, universal banks have initiated its operations because nineteen century. There's mounting evidence that in those countries, universal banks have taken an crucial component inside the development of true sectors as well as the financial system. In those people countries, the growing numbers of universal banking practices are very supported by the regulation of central of bank.
Despite, in the United States, they're strict to regulate universal banks by blocking commercial banks from engaging in securities and stock markets practices. They argued how the course of action of universal banking might be harmful to your financial system. ((Boyd et.al, 1998) cited in Cheang, 2004) The "risk" could possibly be the key reason why the central bank from the U.S is worried for the universal banking system. Since, if the central of bank allowed banks to improve their operation to become universal banks, the relationship among, banks, financial and stock markets would be closer. Consequently, this would give an uncertainty towards the banks condition and performance. For example, if there have been a disaster in stock market, banks would get difficulties in their financial positions. Thus, they would tend being insolvent.
In addition universal banks would also threaten the marketplace share of other specialized institutions, simply because a lot more shoppers would choose universal banks that offer more selection to their investment. Hence, a lot more specialized institutions are possibly to become ruined within the U.S financial industry.
One majoring factor, that's triggering a bank being universal bank, is to improve the profit by enlarging their industry share. In accordance with Joo A. C. Santos (1998) universal bank itself can be defined as the financial institution, which enlarges its assistance amount in terms of offering different financial products and services in 1 site. Thus, by operating universal banking, banks could get a higher opportunity to expand to one more financial area, for instance : financial securities, insurance, hedge cash and etc.
Although the trend of banks has recently tended to universal banks, it's absolutely actual that universal banks would also face extra risks simply because a wide amount of financial services is strongly associated with increasing risks and escalating monitoring costs. They may be the major concerns why banks have to implement more advance technology in terms of financial risk management. Moreover, the practices of universal banks would result in important risks to economy's payment system. Since, the operation of universal banks connects closely towards financial and stock markets which are quite fluctuate in a short term.
To win in the tight competition among financial institutions, banks have to alter their maneuver to lead from the market. Universal bank stands out as the wise choice for your bank manager, mainly because they are able to attract a lot more consumers using a wide range of services. Furthermore, by altering their operation to the universal banking system, banks would get rewards in the efficiency and economies of scale.
In order to understand for the universal banking practices, this paper would examine the exclusive matters, which related towards the risks and benefits in a universal bank. Moreover, this paper would also focus the whole impact of this institution for the financial system as well as the economy as being a whole.
1.2 PROFITS AND Prices IN UNIVERSAL BANKING: IMPLICATIONS FOR Individual BANKS
General problem related to financial intermediation, include universal banks and an additional sort of banks, is about asymmetric information . It's the main dilemma that factors prices to improve and influence the performance of financial institutions. In Universal banks, the difficulties that would improve are slightly different with specialized banks; they are similar in that they need to cope the risks dilemma associated with their financial position. Although, in universal banks, the risks are a lot more bigger as a result of the wide range of financial instruments that they organized. Therefore, banks have to enhance their spending on monitoring costs that are far more difficult than specialized institutions or conventional banks.
Possible answer why a lot more banks sacrifice on the escalating risks and transform it operation to the universal banking is that they need to compete and expand their market share, so that you can seek a higher opportunity profits by serving additional alternatives to their customers. Many banks has experienced a very good performance after they improve their operation, the main concerns are that they could reach much better economies of scale which can reduce the amount of spending in operational prices and a higher opportunity to obtain more profits. The search finding which was conducted by Vender, R. (2002, cited in Cheang, 2004) for the efficiency of earnings in financial conglomerates as well as the level of both profit and cost in universal banking, has proved that each financial conglomerates and universal banking contain very good performance in several indicators of bank profitability. His finding also suggests that the sustained expansion of financial conglomerates and universal banking practices might improve efficiency within the financial system.
This opinion is strengthen by an additional experts, like : George Rich and Christian Walter (1993). They state that universal banks which posse benefits over specialized institutions, are in a position to take advantage of reduction in the average price of production and scope in banking. It's essential for banks that operate on a international level and in order to fulfill client needs with a range of financial services. They also mention a standard example how universal banks in some countries, for example : Switzerland, Germany and a lot more European nations has experienced benefits by operating universal banking. In addition, they also nation how the fear if universal bank would threaten specialized institutions has not proven. In Switzerland and Germany, for example, specialized institutions could obtain a far better improvement in terms of cooperating with big banks. Universal banks are one of ability market channel which can sell their solutions directly towards the customers, so specialized institutions also get much more return as a result of the increases during the range of universal banks. Therefore, this proves that universal banks don't threat other institutions; in fact, they aid specialized institutions to industry their products.
Despite, in the United States, they're strict to regulate universal banks by blocking commercial banks from engaging in securities and stock markets practices. They argued how the course of action of universal banking might be harmful to your financial system. ((Boyd et.al, 1998) cited in Cheang, 2004) The "risk" could possibly be the key reason why the central bank from the U.S is worried for the universal banking system. Since, if the central of bank allowed banks to improve their operation to become universal banks, the relationship among, banks, financial and stock markets would be closer. Consequently, this would give an uncertainty towards the banks condition and performance. For example, if there have been a disaster in stock market, banks would get difficulties in their financial positions. Thus, they would tend being insolvent.
In addition universal banks would also threaten the marketplace share of other specialized institutions, simply because a lot more shoppers would choose universal banks that offer more selection to their investment. Hence, a lot more specialized institutions are possibly to become ruined within the U.S financial industry.
One majoring factor, that's triggering a bank being universal bank, is to improve the profit by enlarging their industry share. In accordance with Joo A. C. Santos (1998) universal bank itself can be defined as the financial institution, which enlarges its assistance amount in terms of offering different financial products and services in 1 site. Thus, by operating universal banking, banks could get a higher opportunity to expand to one more financial area, for instance : financial securities, insurance, hedge cash and etc.
Although the trend of banks has recently tended to universal banks, it's absolutely actual that universal banks would also face extra risks simply because a wide amount of financial services is strongly associated with increasing risks and escalating monitoring costs. They may be the major concerns why banks have to implement more advance technology in terms of financial risk management. Moreover, the practices of universal banks would result in important risks to economy's payment system. Since, the operation of universal banks connects closely towards financial and stock markets which are quite fluctuate in a short term.
To win in the tight competition among financial institutions, banks have to alter their maneuver to lead from the market. Universal bank stands out as the wise choice for your bank manager, mainly because they are able to attract a lot more consumers using a wide range of services. Furthermore, by altering their operation to the universal banking system, banks would get rewards in the efficiency and economies of scale.
In order to understand for the universal banking practices, this paper would examine the exclusive matters, which related towards the risks and benefits in a universal bank. Moreover, this paper would also focus the whole impact of this institution for the financial system as well as the economy as being a whole.
1.2 PROFITS AND Prices IN UNIVERSAL BANKING: IMPLICATIONS FOR Individual BANKS
General problem related to financial intermediation, include universal banks and an additional sort of banks, is about asymmetric information . It's the main dilemma that factors prices to improve and influence the performance of financial institutions. In Universal banks, the difficulties that would improve are slightly different with specialized banks; they are similar in that they need to cope the risks dilemma associated with their financial position. Although, in universal banks, the risks are a lot more bigger as a result of the wide range of financial instruments that they organized. Therefore, banks have to enhance their spending on monitoring costs that are far more difficult than specialized institutions or conventional banks.
Possible answer why a lot more banks sacrifice on the escalating risks and transform it operation to the universal banking is that they need to compete and expand their market share, so that you can seek a higher opportunity profits by serving additional alternatives to their customers. Many banks has experienced a very good performance after they improve their operation, the main concerns are that they could reach much better economies of scale which can reduce the amount of spending in operational prices and a higher opportunity to obtain more profits. The search finding which was conducted by Vender, R. (2002, cited in Cheang, 2004) for the efficiency of earnings in financial conglomerates as well as the level of both profit and cost in universal banking, has proved that each financial conglomerates and universal banking contain very good performance in several indicators of bank profitability. His finding also suggests that the sustained expansion of financial conglomerates and universal banking practices might improve efficiency within the financial system.
This opinion is strengthen by an additional experts, like : George Rich and Christian Walter (1993). They state that universal banks which posse benefits over specialized institutions, are in a position to take advantage of reduction in the average price of production and scope in banking. It's essential for banks that operate on a international level and in order to fulfill client needs with a range of financial services. They also mention a standard example how universal banks in some countries, for example : Switzerland, Germany and a lot more European nations has experienced benefits by operating universal banking. In addition, they also nation how the fear if universal bank would threaten specialized institutions has not proven. In Switzerland and Germany, for example, specialized institutions could obtain a far better improvement in terms of cooperating with big banks. Universal banks are one of ability market channel which can sell their solutions directly towards the customers, so specialized institutions also get much more return as a result of the increases during the range of universal banks. Therefore, this proves that universal banks don't threat other institutions; in fact, they aid specialized institutions to industry their products.
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