A universal bank participates in many kinds of banking activities and is both a commercial bank and an investment bank. These are also called full-service financial firms, although there can also be full-service investment banks which provide asset management, trading, and underwriting.
The concept is most relevant in the United Kingdom and the United States, where historically there was a distinction drawn between pure investment banks and commercial banks. In the US, this was a result of the Glass–Steagall Act of 1933. In both countries, however, the regulatory barrier to the combination of investment banks and commercial banks has largely been removed, and a number of universal banks have emerged in both jurisdictions. However, at least until the global financial crisis of 2008, there remained a number of large, pure investment banks.
In other countries, the concept is less relevant as there is not regulatory distinction between investment banks and commercial banks. Thus, banks of a very large size tend to operate as universal banks, while smaller firms specialised as commercial banks or as investment banks. This is especially true of countries with a European Continental banking tradition. Notable examples of such universal banks include BNP Paribas and Société Générale of France; HSBC and RBS of the United Kingdom; Deutsche Bank of Germany; Bank of America, Citigroup, JPMorgan Chase and Wells Fargo of the United States; and UBS and Credit Suisse of Switzerland.
Following the 1907 financial crisis, the U.S. Monetary Commission wanted to understand the major financial systems of the world. A treatise by Jakob Riesser, the director of a Berlin bank, argued that the German universal banking system possessed beneficial characteristics that allowed it to efficiently provide inexpensive capital to industry and promote growth. Alexander Gerschenkron also advanced the hypothesis that universal banking was critical to Germany's industrialization. More recently, Caroline Fohlin has questioned the validity of the Gerschenkron hypothesis.
Universal banking and relationship 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.
Famous quotes containing the words universal and/or bank:
“It is long ere we discover how rich we are. Our history, we are sure, is quite tame: we have nothing to write, nothing to infer. But our wiser years still run back to the despised recollections of childhood, and always we are fishing up some wonderful article out of that pond; until, by and by, we begin to suspect that the biography of the one foolish person we know is, in reality, nothing less than the miniature paraphrase of the hundred volumes of the Universal History.”
—Ralph Waldo Emerson (1803–1882)
“Life is a long Dardenelles, My Dear Madam, the shores whereof are bright with flowers, which we want to pluck, but the bank is too high; & so we float on & on, hoping to come to a landing-place at last—but swoop! we launch into the great sea! Yet the geographers say, even then we must not despair, because across the great sea, however desolate & vacant it may look, lie all Persia & the delicious lands roundabout Damascus.”
—Herman Melville (1819–1891)