A Universal Banking participates in many banking activities namely commercial banking, investment banking and offers some financial services such as insurance.
In other words, we can say that “Universal bank is a financial supermarket where all financial products are sold under one Roof.”
Apart from that there can also be full service investment services which include wealth & asset management, financial advisory, underwriting, trading and researching. Banks in universal system can still choose to specialize in a subset of banking services. Universal banking and private banking often coexist, but can exist independently. The provision of many services by universal banks can lead to long-term relationships between universal banks and firms.
Advantages of Universal Banking:-
i. Better resource utilization
ii. Value added services
iii. Existing clientele leverages
iv. Increased diversion and increased profitability
v. Savings of transaction costs
vi. One stop shopping
vii. Easy marketing
viii. Profit diversification
Disadvantages of Universal Banking: -
i. Immense effect of failure on other banks: - As we know that universal banking is done with the large banks. If these fails, then others banking institutions are adversely affected.
ii. Monopoly: - These banks are so large in size that they had deep affect on market as monopoly do. Monopoly has power to influence the economic development in the country.
iii. Interest conflict: - Universal banking offers both commercial and investment services & it may offer different interest rates on it to increase their profit which in turn seem very unfair to the customers.
iv. Dissimilar Rules and regulations: - It is known that a universal banking system offers all financial services under one roof. These services may include Mutual funds, insurance, Home Loan etc. All such services have different rules and regulations to follow.