Universal Banking: International Comparisons and Theoretical Perspectives

Universal Banking: International Comparisons and Theoretical Perspectives

Universal Banking: International Comparisons and Theoretical Perspectives

Universal Banking: International Comparisons and Theoretical Perspectives

Synopsis

The deregulation and disintermediation process, the globalization of financial markets, the emergence of new competitors, and the introduction of new information technologies have brought about profound changes in the banking industry. Banks have lost market share and show decreasing economic performance. In the wake of this Professor Canals addresses several important questions: are universal banks bound to disappear? What is the role of universal banks in modern financial markets? What should banks' strategic reactions be to those changes in the industry?

Excerpt

The drastic changes that have occurred in the banking industry in many industrial countries over the past two decades have had a tremendous impact on financial intermediaries.

The deregulation and disintermediation processes, the globalization of financial markets, the emergence of new competitors, and the introduction and application of new information technologies in the banking industry have led to profound changes in its structure, increased competition, and squeezed margins. As a result, banks are reconsidering their traditional ways of competing and are seeking to redefine their strategy and organization.

One of the challenges facing banks in the major industrial countries is the growing importance of capital markets which, with the emergence of new financial instruments, are replacing some of the banks' traditional functions as financial intermediaries.

The banks' response to these challenges has been varied. Some have opted for concentrating on the traditional retail business, others for controlling part of the transactions that take place in the capital markets. Finally, some banks are following the financial markets in their globalization process, seeking to internationalize their activities, either alone or in alliance with other banks. However well the banks following these strategies may do, it can be safely said that nothing is as it was in the banking industry.

This book tries to make a contribution in three areas regarding universal banks in industrial countries. First, many banks have figured out that the only way to survive in this changing industry is to become universal banks by integrating different financial businesses. This strategy has manifested itself in several decisions: diversification into other financial activities, diversification into non-banking or non-financial activities, mergers and acquisitions, internationalization of activities, and, finally, the adoption of new organizational structures that enable a response to a quickly changing market. We will discuss the challenges and risks that universal banks face in their diversification process, and suggest ways of handling the increasing complexity. Moreover, the analysis of the advantages of universal banks over specialist institutions is developed from the viewpoint of banks, not from the more usual perspective of non-financial firms or the growth rate of a country. For that purpose, we will adopt the approach of considering what a universal bank's corporate strategy should be and problems of its implementation.

Second, we will discuss the relationship between banks and financial markets in this context of deregulation and disintermediation. The questions we want to address are: Will financial markets capture all the financial intermediation . . .

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