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Banking system and their pros and cons

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In order to manage our finances we look forward to a trustworthy banking network. This article attempts to provide some insight into the different banking systems and the various advantages and disadvantages.

Universal Banking
Management of public funds is a huge task, which is usually undertaken by the banking systems. The widespread banking system can be subdivided into various categories-

  • Commercial banking,
  • Investment banking,
  • Development banking,
  • Insurance & many other financial activities.

As the name suggests, the Universal bank offers solutions to most of the fund management related queries – it includes – Merchant banking, Mutual funds, Factoring, Credit cards, Housing finances, Auto loans, Retail loans, Insurance, etc.

Advantages of Universal Banking

  1. One of the primary functions of Universal banking is to manage equity shares of many companies. Unlike other firms, Universal banks hold a special place within the investors’ group and investors’ have more faith in Universal banks than other firms.
  2. Universal banks have the reputation of offering higher output and lower costs with better product and quality service.
  3. Universal banks help the client take risks within their reach. Therefore, if the client is a high-risk taker, the Universal bank provides the client with investment options having high-risk quotient and vice-versa.
  4. Universal banks have a panel of experts to suggest solutions to individual clients with different enquiries.
  5. Universal banks operate along with several branches which serve the purpose of marketing (selling) of financial products and services of the clients. Due to their well-established brand name, they require less marketing efforts.
  6. For a client (or investor) who is looking for more than one investment option, Universal bank is the best solution, saving a lot of time and cost to the client.

Disadvantages of Universal Banking

  1. As Universal banking gives solution for all financial products and services, it also creates a lot of confusion as there are different rules and regulations for different investment options.
  2. Universal banking is usually done by large banks. And the downfall of such banks would automatically affect the entire banking community.
  3. Due to the huge spread of universal banks, they easily acquire he monopoly status and thus have a negative impact on other banks.
  4. As both commercial banking and investment banking are available under one roof within Universal banking, it may create a conflict between the two forms, thereby reducing the importance of either one of them.
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