Question

What do you think about letting financial institutions pursue simultaneous activities in the commercial banking, insurance market, and securities market?? is it good?? bad?? unclear? && WHY? EXPLAIN. & then ask your self if there is any lesson to learn about this policy from the US financial crisis of 2007-2008??. EXPLAIN USING AT LEAST 5 LINES

Answer 1

Financial institutions pursue simultaneous activities in commercial banks

When the financial institutions does simultaneous activities in commercial banks, insurance market, securities market etc.it is termed as universal banking. It is multi purpose and multi functional supermarket. According to Reserve Bank it is a combination of commercial banking and investment banking. According to the World Bank, the financial entities i.e. the commercial banks, financial institutions etc. undertakes different activities of finance and offers services under single brand name.

It is a very good concept as it is very useful and the time is not wasted. The work can be done very easily. There are many advantages of this system. They are:

1. It maximizes economies of scale and scope by bundling the production of the services of finance. This would give high output in low cost with better products
2. The customers does not have to go around to many places for the financial works. Since they can get all the services under the same roof.
3. It earns more profit through various interest rates and income from the fees and commission of the banking activities.

After the financial crisis of 2007-2008 there were emergence of new financial sectors in the economy. These banks became popular as they were technically strong and had better business models. They attracted more people as they found all the activities were done at the same place. They did not have to go to more than one place. The rise of universal banking resulted in rapid expansion in banks and they got diversified into new financial institutions.