Definition of universal banking. The concept of universal banking. Advantages/ Disadvantages of universal banking.

the future trend of universal banking in different countries. What is offshore banking. Advantages/ Disadvantages of offshore banking. Regulation of offshore banks. financial services from offshore banks. List of offshore financial centres.

As per the World Bank, "In Universal Banking, large banks operate extensive network of branches, provide many different services, hold several claims on firms(including equity and debt) and participate directly in the Corporate Governance of firms that rely on the banks for funding or as insurance underwriters".

The entry of banks into the realm of financial services was followed very soon after the introduction of liberalization in the economy. Since the early 1990s structural changes of profound magnitude have been witnessed in global banking systems. Large scale mergers, amalgamations and acquisitions between the banks and financial institutions resulted in the growth in size and competitive strengths of the merged entities. Thus, emerged new financial conglomerates that could maximize economies of scale and scope by building the production of financial services organization called Universal Banking. By the mid-1990s, all the restrictions on project financing were removed and banks were allowed to undertake several in-house activities. The phenomenon of Universal Banking as a distinct concept, as different from Narrow Banking came to the forefront in the Indian context with the Narsimham Committee (1998) and later the Khan Committee (1998) reports recommending consolidation of the banking industry through mergers and integration of financial activities.

 Economies of Scale.  Profitable Diversions.  Resource Utilization. 

One-stop shopping.

 Investor Friendly Activities.

 Grey Area of Universal Bank.  No Expertise in Long term lending.  NPA Problem Remained Intact.

Universal banks have long played a leading role in Germany, Switzerland, and other Continental European countries. The principal Financial institutions in these countries typically are universal banks offering the entire array of banking services. Continental European banks are engaged in deposit, real estate and other forms of lending, foreign exchange trading, as well as underwriting, securities trading, and portfolio management. In the Anglo-Saxon countries and in Japan, by contrast, commercial and investment banking tend to be separated. In recent years, though, most of these countries have lowered the barriers between commercial and investment banking.

First: universal banks no doubt will continue to play an important role. They possess a number of advantages over specialized institutions. In particular, they are able to exploit economies of scale and scope in banking. These economies are especially important for banks operating on a global scale and catering to customers with a need for highly sophisticated financial services. Second: although universal banks have expanded their sphere of influence, the smaller specialized institutions have not disappeared. In both Germany and Switzerland, they are successfully coexisting and competing with the big banks. Third: universality of banking may be achieved in various ways. No single type of universal banking system exists. The German and Swiss universal banking systems differ substantially in this regard. In Germany, universality has been strengthened without significantly increasing the market shares of the big banks. Instead, the smaller institutions have acquired universality through cooperation.

An offshore bank is a bank located outside the country of residence of the depositor, typically in a low tax jurisdiction (or tax haven) that provides financial and legal advantages. These advantages typically include:

greater privacy (see also bank secrecy, a principle born with the 1934 Swiss Banking Act)  low or no taxation (i.e. tax havens)  easy access to deposits (at least in terms of regulation)  protection against local political or financial instability


Offshore banks can sometimes provide access to politically and economically stable jurisdictions. This will be an advantage for residents in areas where there is risk of political turmoil,who fear their assets may be frozen, seized or disappear . Some offshore banks may operate with a lower cost base and can provide higher interest rates than the legal rate in the home country due to lower overheads and a lack of government intervention. Offshore finance is one of the few industries, along with tourism, in which geographically remote island nations can competitively engage. It can help developing countries source investment and create growth in their economies.

Interest is generally paid by offshore banks without tax being deducted. This is an advantage to individuals who do not pay tax on worldwide income, or who do not pay tax until the tax return is agreed. Some offshore banks offer banking services that may not be available from domestic banks such as anonymous bank accounts, higher or lower rate loans based on risk and investment opportunities not available elsewhere.

Offshore banking has been associated in the past with the underground economy and organized crime, through money laundering. Following September 11, 2001, offshore banks and tax havens, along with clearing houses, have been accused of helping various organized crime gangs, terrorist groups, and other state or non-state actors.

Offshore jurisdictions are often remote, and therefore costly to visit, so physical access and access to information can be difficult. Offshore private banking is usually more accessible to those on higher incomes, because of the costs of establishing and maintaining offshore accounts.

Offshore bank accounts are sometimes touted as the solution to every legal, financial and asset protection strategy but this is often much more exaggera

The tightening of anti-money laundering regulations in many countries including most popular offshore banking locations means that bankers are required, by good faith, to report suspicion of money laundering to the local police authority, regardless of banking secrecy rules. There is more international co-operation between police authorities. In the US the Internal Revenue Service (IRS) introduced Qualifying Intermediary requirements, which mean that the names of the recipients of US-source investment income are passed to the IRS. Following 9/11 the US introduced the USA PATRIOT Act, which authorises the US authorities to seize the assets of a bank, where it is believed that the bank holds assets for a suspected criminal. Similar measures have been introduced in some other countries. The European Union has introduced sharing of information between certain jurisdictions, and enforced this in respect of certain controlled centres, such as the UK Offshore Islands, so that tax information is able to be shared in respect of interest.

deposit taking credit wire and electronic funds transfers foreign exchange letters of credit and trade finance investment management and investment custody fund management trustee services corporate administration Not every bank provides each service. Banks tend to polarise between retail services and private banking services. Retail services tend to be low cost and undifferentiated, whereas private banking services tend to bring a personalised suite of services to the client.

Antigua and Barbuda Bahamas Hong Kong New Zealand Singapore Switzerland

In India Development financial institutions (DFIs) and refinancing institutions (RFIs) were meeting specific sect oral needs and also providing long-term resources at concessional terms, while the commercial banks in general, by and large, confined themselves to the core banking functions of accepting deposits and providing working capital finance to industry, trade and agriculture. Consequent to the liberalisation and deregulation of financial sector, there has been blurring of distinction between the commercial banking and investment banking. Reserve Bank of India constituted on December 8, 1997, a Working Group under the Chairmanship of Shri S.H. Khan to bring about greater clarity in the respective roles of banks and financial institutions for greater harmonization of facilities and obligations . Also report of the Committee on Banking Sector Reforms or Narasimham Committee (NC) has major bearing on the issues considered by the Khan Working Group. The issue of universal banking resurfaced in Year 2000, when ICICI gave a presentation to RBI to discuss the time frame and possible options for transforming itself into an universal bank. Reserve Bank of India also spelt out to Parliamentary Standing Committee on Finance, its proposed policy for universal banking, including a case-by-case approach towards allowing domestic financial institutions to become universal banks. Now RBI has asked FIs, which are interested to convert itself into a universal bank, to submit their plans for transition to a universal bank for consideration and further discussions. FIs need to formulate a road map for the transition path and strategy for smooth conversion into a universal bank over a specified time frame. The plan should specifically provide for full compliance with prudential norms as applicable to banks over the proposed period.

* www.banknetindia.com/banking/ubfeature.htm: Universal Banking: introduction, RBI rules and regulations, Universal Banking in India * www.answers.com/topic/universal-banking: Universal Banking: definition * www.investopedia.com/terms/u/universalbanking.asp Universal Banking: definition * www.cato.org/pubs/journal/cj13n2/cj13n2-8.pdf Universal Banking: Future * 'The Universal Banking': introduction, concept, pros and cons. Journal of Professional Banker, October 2006 pg 24-27

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