Reflections on the global universal banking model

Introduction

The ongoing post-financial crisis debate on banking reform has seen greater focus on bank business models. The universal banking model, alongside other bank models, is under scrutiny, principally as a result of losses suffered by many banks during the crisis. This has driven comprehensive reforms seeking to make individual institutions and the financial system as a whole more resilient – with concerns about banks being „too big to fail“ (TBTF) emerging as a key driver of the political and regulatory agenda.

Banks have changed profoundly since the crisis, partly in response to tighter regulation. As well as holding more capital, they have recalibrated their strategies around three broad models, with a trend towards the „narrower“ end of the spectrum: regionally-focused commercial banks, global specialists and global universal banks . The industry also faces disintermediation challenges from less-regulated shadow banks and technology-led „disrupters“ targeting markets traditionally served by banks .

Given the intensifying scrutiny and competition facing universal banks, it is important to assess the trade-offs involved in this business model. These are explored below from t...