The Study Of Development Of Universal Banking

This paper systematically investigates the current situation, theoretical foundation and development trend of universal banking in western countries and provides some thoughts about the development of universal banking in China.Firstly, this paper provides an overview of the development history of universal banking in the world. The history of the world banking industry may be traced back to over 400 years ago. Today's banks now has a much more extensive business scope than before and are able to provide highly diversified services for their customers. Universal banks which provide the full range of financial services appeared in the early 19th century. But during the period of the Great Depression in the end of the 1930s' and after the Second World War, development of the universal banking was frustrated due to restrictions imposed by the supervising authority. In order to control financial risks, some regulations were issued to prohibit banks from dealing with securities and insurance as well as holding shares in non-financial enterprises, among which the Class-Steagall Act of 1933 issued by the U.S government marks the beginning of divided operation of banks. This brought a great shock to the world banking industry. The function and status of banks in market were even doubted by many scholars. However, universal banking has survived through the adverse situation and grown up, and successfully established its position in the market. Nowadays, universal banking system has been adopted by almost all developed countries and many developing countries. China also has a few universal banks now. In November of 1999, the U.S government issued the Financial Services Modernization Act of 1999 and abolished the regulation of divided operation, which ushered a thriving era for the development of universal banking. The development track of global universal banking may be summarized as: Originated in Germany→widely adopted in Europe→introduced into America→followed by Asia→to be introduced and integrated into China's banking system.The development of universal banking is closely related to the demand of the society and economy. Analysis about the driving mechanism for the development of universal banking shows that: the change of economic situation is the direct driving force; technological innovation has accelerated its development; globalization of financial market and global expansion of financial institutes have promoted the development of universal banking as well. Universal banking originated in Germany and then was widely adopted by developed countries such as the U.S, Japan and Western European countries. The U.S is the first country to adopt divided operation, however, after a lot of ups and downs, it finally returned to mixed operation in the end of 1990s. After the Asian financial crisis, Japan transformed its banking system thoroughly and returned to universal banking system. Universal banking system was also adopted by U.K. and other Western European countries after banks in these countries had successfully penetrated into securities and insurance sector. There are two typical universal banking modes, which are the result of capital market of different maturity, one is the universal bank of financial holding company in the U.S, the other is the universal bank of mixed holding company in Germany.Secondly, the status and function of financial medium in the increasingly sophisticated capital market and how traditional commercial banks should develop themselves is an important theoretical topic to be explored, which is also one of the focuses of this paper. According to the theory of modern financial medium and the principle of risk management theory, transaction cost and participation cost are the fundamental reasons for banks to exist. Guided by innovative insights of financial medium theory, we have achieved the following conclusions: financial medium has the characteristic of objectivity; financial medium and market are complimentary to each other; banking business and non-banking business may in...