Chain Banking: Chain banking is a type of banking which is a group of minimum 3 banks held together by a group of people to carry out effective banking activities.
Instead of having a holding company the bank functions independently. The revenue is maximised since there is no overlap of activities. Relationship Banking In such a type of banking, the the major needs of the customers are understood by the bank and accordingly banking services are provided to the individual.
Banks get to know if the customer is credit worthy since they have to gather information about its customers. Correspondent Banking In more than countries, this type of banking is prevalent and is considered the most profitable way of doing business.
In such a type of banking, the bank does not have a physical presence or any limitations in the permission of operations. It acts as a banking agent for a home bank. Correspondent Banking. Labels: banking. Newer Post Older Post Home. Such lenders could just become large payment banks. It need not be done overnight, but can be done on an incremental basis by slowly whittling down their loan books. Traditionally, the argument against such conversions has been that narrow banks do not perform certain crucial functions such as giving loans to the so-called priority sectors.
Such an argument might have been valid two decades ago. Remember, that even the Narasimham Committee had recommended moving to a structure which would have four lenders as global banks and only 10 nationwide universal banks, besides local banks. RBI has already laid the foundation when it introduced differentiated licences.
So, even if the worst of state-owned banks are converted to narrow banks, there are enough private and small finance banks out there to lend to the small borrower. Newer technologies such as peer-to-peer lending, for which RBI has come out with regulations recently although unsatisfactory , will further financial inclusion. For larger borrowers, banks have been replaced as the largest source of funds over the last two years by other means such as debt securities market and the equity market.
In any case, RBI is moving to a system where it wants large borrowers to shift their incremental borrowings to the bond market. Indeed, financial sector reforms that inject more life into the bond markets will do more to prevent the problems of future bad loans building up rather than throw more money into weak banks. Narrow banks should be considered seriously to ensure that the mistakes of the past are not repeated at this scale.
They will ring-fence a good part of the banking system from repeated failure that necessitate grand bailouts. Although, the government is planning to infuse Rs2. What is being done to prevent future non-performing loans from building? While a universal banking system allows banks to offer a multitude of services, it does not require them to do so. Banks in a universal system may still choose to specialize in a subset of banking services.
Universal banking combines the services of a commercial bank and an investment bank, providing all services from within one entity.
The services can include deposit accounts, a variety of investment services, and may even provide insurance services. Deposit accounts within a universal bank may include savings and checking. Under this system, banks can choose to participate in any or all of the permitted activities. They are expected to comply with all guidelines that govern or direct proper management of assets and transactions.
Since not all institutions participate in the same activities, the regulations in play may vary from one institution to another. However, it is important not to confuse the term "universal bank" with any financial institutions with similar names. Due to strict regulation, the universal banking system was slow to grow in the United States.
In a measure to prevent further bank failures, the act prohibited universal banking. Commercial banks were not allowed to provide investment banking services, such as securities trading and brokerage services.
The goal of the GLBA was to modernize the financial services industry by allowing financial institutions to expand the products and services they could offer their customers. Laws impacting universal banking in the U. For example, the financial crisis caused a number of failures within the investment banking system in the United States.
This led to the acquisition or bankruptcy of a variety of institutions. Some notable examples include Lehman Brothers and Merrill Lynch. In response, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act in , which restricted the ways in which banks could invest by limiting speculative trading and prohibiting involvement with hedge funds and private equity firms. Opponents of Dodd-Frank criticized the act for going overboard in reducing the market-making activities of banks.
Despite the evolving rules regarding universal banking, many financial service providers in the U. While developments have removed a number of the barriers to the creation of universal banks in the U. The United States has banks that focus purely on investments, which is uncommon in the rest of the world.
Federal Reserve. United States Congress.
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