Universal Banking in the United States: What Could We Gain? What Could We Lose?

• Author: Keating, Barry P.

Saunders and Walter have written a technical description of commercial banking in the United States and compared it to the more universal systems used in other countries (i.e., Germany, Switzerland, and England). The volume presents (promotes?) a case for a more universal banking system in the United States. "Universal banking" is understood as an institutional arrangement under which there are few, if any, activity limits on banking institutions.

Thus, universal banks could, in addition to making loans and accepting deposits, distribute new issues of debt and equity, trade and broker securities of all types, sell fee-based advisory services, manage investments, trade foreign exchange, and handle derivative instruments related to risk management (i.e., forward contracts, futures, options, and insurance).

The authors argue that the current activity limits on U.S. commercial banking date back to the Glass-Steagall provisions of 1933; they are outdated and the Congress has done a disservice to the nation by allowing these activity restrictions to remain on the books. These limits place U.S. banks at a competitive disadvantage to international institutions and cause our financial system to be less efficient than it otherwise would be.

The first section of the book is devoted to presenting data on measures of performance (e.g., profitability, market shares, size rankings, etc.). The authors conclude that ". . . there is enough inferential evidence to suggest that the permissible institutional form does in fact make a difference."

A second section of the book includes an extended description of exactly what is meant by the phrase "universal banking" and comparisons of different forms of universal banking abroad. The final section of the book discusses and analyzes the major question posed...