Universal Banking – Answer For The Best Banking Design?

1.1 INTRODUCTION

In recent years, universal banking has been growing its popularity in Indonesia. Mandiri Bank, for example, has taken strategy to become 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 developed countries in Europe, universal banks have initiated its operations since nineteen century. There is mounting evidence that in those countries, universal banks have taken an important part in the development of real sectors and the financial system. In those countries, the growing numbers of universal banking practices are really supported by the regulation of central of bank.

Despite, in The United States, they are strict to regulate universal banks by blocking commercial banks from engaging in securities and stock markets practices. They argued that the practice of universal banking might be harmful for the financial system. ((Boyd et.al, 1998) cited in Cheang, 2004) The “risk” might be the key reason why the central bank of The U.S is worried about the universal banking system. Since, if the central of bank allowed banks to adjust their operation to be universal banks, the relationship among, banks, financial and stock markets would be closer. Consequently, this would give an uncertainty to the banks condition and performance. For example, if there were a disaster in stock market, banks would get problems in their financial positions. Thus, they would tend to be insolvent.

In addition universal banks would also threaten the market share of other specialized institutions, because more customers would choose universal banks that offer more option to their investment. Hence, more specialized institutions are likely to be ruined in the U.S financial industry.

One majoring factor, which is triggering a bank to be universal bank, is to increase the profit by enlarging their market share. According to João A. C. Santos (1998) universal bank itself can be defined as the financial institution, which enlarges its service range in terms of offering a variety of financial products and services in one site. Thus, by operating universal banking, banks could get a greater opportunity to expand to another financial area, such as : financial securities, insurance, hedge funds and etc.

Although the trend of banks has recently tended to universal banks, it is undoubtedly true that universal banks would also face further risks because a wide range of financial services is strongly associated with increasing risks and escalating monitoring costs. These are the major concerns why banks have to implement more advance technology in terms of financial risk management. Moreover, the practices of universal banks would cause significant risks to economy’s payment system. Since, the operation of universal banks connects closely to the financial and stock markets that are very fluctuate in a short term.

To win in the tight competition among financial institutions, banks have to alter their maneuver to lead in the market. Universal bank could be the wise choice for the bank manager, because they can attract more customers with a wide range of services. Furthermore, by altering their operation to the universal banking system, banks would get benefits from the efficiency and economies of scale.

In order to understand about the universal banking practices, this paper would examine the exclusive matters, which related to the risks and benefits in a universal bank. Moreover, this paper would also focus the whole impact of this institution to the financial system and the economy as a whole.

1.2 PROFITS AND COSTS IN UNIVERSAL BANKING: IMPLICATIONS FOR INDIVIDUAL BANKS

General problem related to financial intermediation, include universal banks and another type of banks, is about asymmetric information . It is the main problem that causes costs to increase and influence the performance of financial institutions. In Universal banks, the problems that would increase are slightly different with specialized banks; they are similar in that they should cope the risks problem associated with their financial position. Although, in universal banks, the risks are more bigger due to the wide range of financial instruments that they organized. Therefore, banks have to increase their spending on monitoring costs that are more complicated than specialized institutions or conventional banks.

Possible answer why more banks sacrifice to the escalating risks and transform it operation into the universal banking is that they want to compete and expand their market share, in order to seek a greater opportunity profits by serving more choices to their customers. Many banks has experienced a great performance after they alter their operation, the main concerns are that they could reach better economies of scale which can reduce the amount of spending in operational costs and also a greater opportunity to get more profits. The research finding which was conducted by Vender, R. (2002, cited in Cheang, 2004) about the efficiency of revenue in financial conglomerates and the level of both profit and cost in universal banking, has proved that both financial conglomerates and universal banking contain good performance in several indicators of bank profitability. His finding also suggests that the sustained expansion of financial conglomerates and universal banking practices may increase efficiency in the financial system.

This opinion is strengthen by another experts, like : George Rich and Christian Walter (1993). They state that universal banks which posse benefits over specialized institutions, are able to take advantage of reduction in the average cost of production and scope in banking. It is essential for banks that operate on a international level and in order to fulfill customer needs with a variety of financial services. They also mention a classic example how universal banks in some countries, such as : Switzerland, Germany and more European countries has experienced benefits by operating universal banking. In addition, they also state that the fear if universal bank would threaten specialized institutions has not proven. In Switzerland and Germany, for example, specialized institutions could achieve a better improvement in terms of cooperating with big banks. Universal banks are one of potential market channel which can sell their products directly to the customers, so specialized institutions also get additional return due to the increases in the number of universal banks. Therefore, this proves that universal banks do not threat other institutions; in fact, they support specialized institutions to market their products.

According to Fohlin, universal banking would lead to a bank’s concentration due to the increases the number of branch. Based on Germany’s experience, such branching-based expansion has led to the efficiency in banking because it could increase economies of scale in advertising and marketing, and open an enormous opportunity to enhance diversification and steadiness for banks.

A universal bank has unique position to tackle asymmetric information. As stated by Joao A. C. Santos (1998), that a universal bank has potential benefits on the reduction of agency cost and acquires profits due to information advantages. Although in other sides, universal banking also face problems related to the cost, conflict of interest and safety and soundness. But the default risk, which is generally happened in financial intermediation, would decrease substantially because universal banks are easier to control over their customers. Most of lenders in universal banks are their customers, so they can understand about the capacity of the customers from the information that they gather.

Nicholas Cheang (2004) also points out how universal banks could reduce a crucial problem in financial institution, asymmetric information. He argued that they could preserve a close relationship with their borrowers, by gathering more relevant information to make an important decision for investment. Their advantageous positions also vital to optimize the distribution of fund allocation, because banks have already known which investment that would give more margins to them. So, they don’t need to worry too much about the risk.

1.3 UNIVERSAL BANKS AND THE STABILITY IN THE FINANCIAL SYSTEM

Financial institution plays a vital role in terms of mobilizing funds in the economy. Consequently, stability in financial system is really important to manage by government in order to prevent wider implications to the real sectors. Financial disasters which happened in most countries in Asia in 1997 are the classic examples how importance to save banks to recover the economy.

As the financial supermarkets, which are handling a variety of financial instruments, they must face a greater risk than specialized institutions. As a consequence, this institution needs to be monitored closely in order to prevent more implications to the economy. According to Benston (1994), the escalating risks in universal banking would lead to a great problem because it can cause generous distress in the financial system. Hence, it will greatly increase the risk to the economy’s payment system. In another term, Rime and Strioh (2001) who examine the financial system in Switzerland in which universal banking are becoming more important in this country, state that difficulty in monitoring large universal banks is a major concern. This is the reason why universal bank has to spend more money in monitoring cost and develop an advanced system in information technology. In other words, it could say that the consequence of inefficient monitoring could lead to financial instability. (Cheang, 2004)

A wider range of universal banks in financial system makes the fund channels of banks to the customer are larger than specialized institutions. So, the economy will improve because universal banks will support more funding. This can be seen by the fact that a universal bank practice in Germany has triggered the progress of some enterprises performance in this country. (Stiglitz, 1985). It is understandable that when the allocation of fund can distribute widely and effectively to the potential enterprises, the economy will improve. In this context, universal banks have played as the key institution which mobilize fund to the potential lender.

Edwards (1996), has also proved that a universal bank is not just significantly contributed to economy from the external funds that they provide, but also from the improvement of the information flows. (cited in Cheang, 2004) Therefore, this proves that universal banks have played a significant role in terms of reducing the default risk by providing important information about the lender or customers. Furthermore, the safety of the financial system would be improved by the existence of universal banks.

1.4 CONCLUSION

The development of universal banks has to in line with the policy direction of central bank, because it is important to keep the stability of financial system and the economy as whole. There are three important areas that must be concerned related to universal bank operations, such as : the strengthened of capital and advanced risk management system. Consequently, in order to manage universal bank, people need to be aware about the unique of the risk type in universal banking. Furthermore, policy maker must also consider about the implication of universal banks in financial system.

Read More

Why Aren’t As Bad As You Think

Tips for Choosing the Best Women’s Healthcare Center in Putnam County

It is vital to identify the most reliable women’s healthcare center in your area in case of a health emergency. The process of searching for the right women’s healthcare center in Putnam County can, however, be overwhelming for most women. This is because the number of women’s healthcare centers available in Putnam County has increased in the last couple of years. You, therefore, need to be knowledgeable about the reliability of different women’s healthcare centers operating in Putnam County when making your decision. This will help you to tell the difference between reliable women’s healthcare centers and unreliable ones when making your decision. You should also consider factors like the cost of using different women’s healthcare centers available in this county before you make your selection. You can also land the right women’s healthcare center in Putnam County using recommendations offered by your friends and colleagues. You need to be fully committed when making your decision to land the best women’s healthcare center in Putnam County. In this post, we will discuss the things to consider when looking for a reliable women’s healthcare center in Putnam County.

First, consider the eligibility of the selected women’s healthcare center. You should choose a women’s healthcare center with a valid license from the governing board in Putnam County. Any reliable women’s healthcare center should be able to provide any document that is necessary to prove their eligibility beforehand. The expertise of doctors used by the selected women’s healthcare center is also a vital thing to consider. Any reliable women’s healthcare center should be willing and able to verify the qualification level of their doctors before you commit o using their healthcare.

The reputation of the selected women’s healthcare center is the second thing to consider when making your decision. You should choose a women’s healthcare center with an excellent reputation in this county. Assessing the online ratings of various women’s healthcare centers available in Putnam County should help you to make the best selection. This will help you to discover about the merit and demerits of seeking healthcare from the selected women’s healthcare center. Going through the online reviews of a particular women’s healthcare center should help you to make the best selection. You should choose the women’s healthcare center with the most positive reviews in Putnam County.

The cost of using the selected women’s healthcare center should be your last consideration. Before you make your selection, make sure that you are familiar with the rates of very women’s healthcare center operating in this county. This will enable you to select the most affordable women’s healthcare center in the industry. It is, however, vital to remember that money is not the only thing to consider when you are looking to use the right women’s healthcare center in Putnam County.
5 Key Takeaways on the Road to Dominating
How I Became An Expert on

Read More

Tips for The Average Joe

Important Thing to Consider When Applying For An Aviation Job

The aviation industry has undergone a lot of revolution in the same way it has also revolutionized the transport industry. Before the invention of the airplane, worldwide travel was not possible, but as at now, one can comfortably cruise the world, thanks to the aviation industry. There are several jobs in the aviation industry, but the most common one is the one of being a pilot or the main controller of the airplane. This job needs one to be very sharp and must have attained all the necessary qualifications before they can be entrusted with human life. There are several crucial things that one should consider when applying for a job as a pilot. These things are discussed in detail below.

The first thing that one should put into considerations is the level of experience they have in the industry. The flying of an airplane, especially the commercial ones, is quite crucial because it involves the handling of human lives as well as many valuable properties. Therefore before applying for a job in that sector, one should make sure that they have gained the necessary experience in a way that they can be entrusted with the property as well as the lives of people. When one has worked for another airline for a slightly longer period of time, they tend to understand the dynamics involved in the flying of a plane, and hence, their skills are sharper.

Before you apply for a job as a pilot, make sure that the advertise job suits your qualifications. There are various types of aeroplanes, and it is quite impossible for one to have knowledge on how to fly them all; as such, one should cross-check the advert to make sure that the job being advertised is I line with what they are conversant with. This will help you avoid applying for a job that falls outside your area of qualifications, which sometimes might just waste your time.

The other thing that one needs to consider is the salary that the advertising form intends to pay you should you qualify or get the job. This is an important factor because the next job you intend to get should not be paying a salary that is way below your current salary. Make sure that the terms of employment and also the remunerations package of the company or advertising agency is better than the current one you are a having to avoid undergoing a salary cut or drop.

The last thing that one should consider is the reputation of the hiring company. This is quite important because the reputation of the company helps you gauge the working conditions as well as the remunerations packages. Some companies have a reputation for having poor working conditions for their workers, and as such, one should avoid such companies. Go for a company that has a good public image with a reputation of paying their employees on time and with excellent working conditions.

Why Aren’t As Bad As You Think

: 10 Mistakes that Most People Make

Read More