1.1 INTRODUCTION
In recent years, universal banking has been growing its popularity in Indonesia. Mandiri Bank, for example, has taken strategy to become Indonesia's universal bank; this bank has also started to develop an integrated economical possibility method with regards to sounding economical performance and increasing shareholder value. In Malaysia, and most western world in Europe, universal loan companies have started its functions since nineteen century. There is mounting evidence that in those nations around the world, universal loan companies have taken an essential part in the development of real groups and the economic climate. In those nations around the world, the growing numbers of universal banking methods are really supported by the regulation of middle of bank.
Despite, in The United States, they are strict to regulate universal loan companies by blocking commercial loan companies from engaging in investments and reveal marketplaces methods. They suggested that the practice of universal banking might be harmful for the economic climate. ((Boyd et.al, 1998) reported in Cheang, 2004) The "risk" might be the key reason why the middle bank of The U.S is worried about the universal banking method. Since, if the middle of bank allowed loan companies to adjust their function to be universal loan companies, the relationship among, loan companies, economical and reveal marketplaces would be closer. Consequently, this would give an uncertainty to the loan companies condition and performance. For example, if there were a disaster in currency marketplaces, loan companies would get issues in their economical opportunities. Thus, they would tend to be insolvent.
In addition universal loan companies would also pressured the business of other specialised organizations, because more clients would choose universal loan companies that offer more option to their investment decision. Hence, more specialised organizations are likely to be ruined in the U.S economical industry.
One majoring factor, which is triggering a bank to be universal bank, is to improve the profit by enlarging their business. According to João A. C. Santos (1998) universal bank itself can be defined as the lending company, which enlarges its service large range with regards to offering a large range of economical loans and solutions in one site. Thus, by operating universal banking, loan companies could get a increased chance to grow to another economical area, such as : economical investments, insurance, hedge resources and etc.
Although the trend of loan companies has recently tended to universal loan companies, it is undoubtedly true that universal loan companies would also deal with further threats because a large range of economical solutions is strongly associated with increasing threats and on the rise, tracking expenditures. These are the major concerns why loan companies have to implement more advance technology with regards to economical possibility management. Moreover, the methods of universal loan companies would cause significant threats to economy's payment method. Since, the function of universal loan companies connects carefully to the economical and reveal marketplaces that are very fluctuate in a quick.
To win in the tight competition among loan companies, loan companies have to alter their maneuver to head that you can buy. Worldwide bank could be the wise choice for the lending company manager, because they can attract more clients with a large range of solutions. Furthermore, by altering their function to the universal banking method, loan companies would get advantages from the performance and financial systems of range.
In obtain to understand about the universal banking methods, this paper would analyze the exclusive matters, which relevant to the threats and advantages in a universal bank. Moreover, this paper would also focus the whole impact of this organization to the economic climate and the economic climate as a whole.
1.2 PROFITS AND COSTS IN UNIVERSAL BANKING: IMPLICATIONS FOR INDIVIDUAL BANKS
General issue relevant to economical intermediation, include universal loan companies and another type of loan companies, is about asymmetric details . It is the issue that causes expenditures to improve and influence the performance of loan companies. In Worldwide loan companies, the issues that would improve are slightly different with specialised banks; they are similar in that they should cope the threats issue associated with their budget. Although, in universal loan companies, the threats are more bigger due to the broad large range of economical equipment that they organized. Therefore, loan companies have to improve their spending on tracking expenditures that are more complicated than specialised organizations or conventional loan companies.
Possible answer why more loan companies sacrifice to the on the rise, threats and transform it function into the universal banking is that they want to compete and develop their business, to be able to seek a increased possibility profits by serving more choices to their clients. Many loan companies has experienced a great performance after they alter their function, the main concerns are that they could reach better financial systems of range which can reduce the amount of spending in operational expenditures and also a increased chance to get more profits. The research finding which was conducted by Vender, R. (2002, reported in Cheang, 2004) about the performance of revenue in economical conglomerates and the level of both profit and price in universal banking, has demonstrated that both economical conglomerates and universal banking contain good performance in several indicators of bank profitability. His finding also suggests that the sustained development of economical conglomerates and universal banking methods may improve performance in the economic climate.
This opinion is strengthen by another experts, like : George Rich and Christian Walter (1993). They condition that universal loan companies which posse advantages over specialised organizations, are able to take advantage of reduction in the average price of production and scope in banking. It is essential for loan companies that operate on a international level and to be able to fulfill customer needs with a large range of economical solutions. They also mention a vintage example how universal loan companies in some nations around the world, such as : Europe, Malaysia and more Europe has experienced advantages by operating universal banking. In addition, they also condition that the fear if universal bank would pressured specialised organizations has not proven. In Europe and Malaysia, for example, specialised organizations could achieve a better improvement with regards to cooperating with big loan companies. Worldwide loan companies are one of prospective industry channel which can sell their items directly to the clients, so specialised organizations also get additional return due to the raises in the number of universal loan companies. Therefore, this shows that universal loan companies do not threat other institutions; in fact, they support specialised organizations to promote their items.
According to Fohlin, universal banking would head to a bank's concentration due to the raises the number of branch. Based on Germany's experience, such branching-based development has led to the performance in banking because it could improve financial systems of range in advertising and marketing, and open an enormous chance to enhance diversification and steadiness for loan companies.
A universal bank has unique position to tackle asymmetric details. As stated by Joao A. C. Santos (1998), that a universal bank has prospective advantages on the reduction of agency price and acquires profits due to details advantages. Although in other sides, universal banking also deal with issues relevant to the price, conflict of interest and safety and soundness. But the standard possibility, which is generally occurred in economical intermediation, would decrease substantially because universal loan companies are easier to control over their clients. Most of lenders in universal loan companies are their clients, so they can understand about the capacity of the clients from the details that they gather.
Nicholas Cheang (2004) also points out how universal loan companies could reduce a crucial issue in loan provider, asymmetric details. He suggested that they could preserve a close relationship with their borrowers, by gathering more relevant details to make an essential decision for investment decision. Their advantageous opportunities also vital to optimize the distribution of finance part, because loan companies have already known which investment decision that would give more margins to them. So, they don't need to worry too much about the possibility.
1.3 UNIVERSAL BANKS AND THE STABILITY IN THE FINANCIAL SYSTEM
Financial organization plays an important role with regards to mobilizing resources in the economic climate. Consequently, stability in economic climate is really essential to manage by government to avoid broader implications to the real groups. Financial disasters which occurred in most nations around the world in Asia in 1997 are the vintage examples how importance to save loan companies to recover the economic climate.
As the economical supermarkets, which are handling a large range of economical equipment, they must deal with a probabilities than specialised organizations. As a consequence, this organization needs to be monitored carefully to avoid more implications to the economic climate. According to Benston (1994), the on the rise, threats in universal banking would head to a great issue because it can cause generous distress in the economic climate. Hence, it will greatly improve the possibility to the economy's payment method. In another term, Rime and Strioh (2001) who analyze the economic climate in Europe in which universal banking are becoming more essential in this country, condition that difficulty in tracking large universal loan companies is a major concern. This is the reason why universal bank has to spend more money in tracking price and develop an advanced method in it. In other words, it could say that the consequence of inefficient tracking could head to economical instability. (Cheang, 2004)
A broader large range of universal loan companies in economic climate makes the finance channels of loan companies to the customer are larger than specialised organizations. So, the economic climate will improve because universal loan companies will support more funding. This can be seen by the fact that a universal bank practice in Malaysia has triggered the progress of some corporations performance in this country. (Stiglitz, 1985). It is understandable that when the part of finance can distribute widely and effectively to the prospective corporations, the economic climate will improve. In this context, universal loan companies have performed as the key organization which mobilize finance to the prospective loan provider.
Edwards (1996), has also demonstrated that a universal bank is not just significantly contributed to economic climate from the external resources that they provide, but also from the improvement of the details flows. (cited in Cheang, 2004) Therefore, this shows that universal loan companies have performed a significant role with regards to reducing the standard possibility by providing details about the lending company or clients. Furthermore, the safety of the economic climate would be improved by the existence of universal loan companies.
1.4 CONCLUSION
The development of universal loan companies has to in line with the policy direction of middle bank, because you should keep the stability of economic climate and the economic climate as whole. There are three essential areas that must be concerned relevant to universal bank functions, such as : the strengthened of capital and advanced possibility management method. Consequently, to be able to manage universal bank, people need to be aware about the unique of the possibility type in universal banking. Furthermore, policy maker must also consider about the implication of universal loan companies in economic climate.
In recent years, universal banking has been growing its popularity in Indonesia. Mandiri Bank, for example, has taken strategy to become Indonesia's universal bank; this bank has also started to develop an integrated economical possibility method with regards to sounding economical performance and increasing shareholder value. In Malaysia, and most western world in Europe, universal loan companies have started its functions since nineteen century. There is mounting evidence that in those nations around the world, universal loan companies have taken an essential part in the development of real groups and the economic climate. In those nations around the world, the growing numbers of universal banking methods are really supported by the regulation of middle of bank.
Despite, in The United States, they are strict to regulate universal loan companies by blocking commercial loan companies from engaging in investments and reveal marketplaces methods. They suggested that the practice of universal banking might be harmful for the economic climate. ((Boyd et.al, 1998) reported in Cheang, 2004) The "risk" might be the key reason why the middle bank of The U.S is worried about the universal banking method. Since, if the middle of bank allowed loan companies to adjust their function to be universal loan companies, the relationship among, loan companies, economical and reveal marketplaces would be closer. Consequently, this would give an uncertainty to the loan companies condition and performance. For example, if there were a disaster in currency marketplaces, loan companies would get issues in their economical opportunities. Thus, they would tend to be insolvent.
In addition universal loan companies would also pressured the business of other specialised organizations, because more clients would choose universal loan companies that offer more option to their investment decision. Hence, more specialised organizations are likely to be ruined in the U.S economical industry.
One majoring factor, which is triggering a bank to be universal bank, is to improve the profit by enlarging their business. According to João A. C. Santos (1998) universal bank itself can be defined as the lending company, which enlarges its service large range with regards to offering a large range of economical loans and solutions in one site. Thus, by operating universal banking, loan companies could get a increased chance to grow to another economical area, such as : economical investments, insurance, hedge resources and etc.
Although the trend of loan companies has recently tended to universal loan companies, it is undoubtedly true that universal loan companies would also deal with further threats because a large range of economical solutions is strongly associated with increasing threats and on the rise, tracking expenditures. These are the major concerns why loan companies have to implement more advance technology with regards to economical possibility management. Moreover, the methods of universal loan companies would cause significant threats to economy's payment method. Since, the function of universal loan companies connects carefully to the economical and reveal marketplaces that are very fluctuate in a quick.
To win in the tight competition among loan companies, loan companies have to alter their maneuver to head that you can buy. Worldwide bank could be the wise choice for the lending company manager, because they can attract more clients with a large range of solutions. Furthermore, by altering their function to the universal banking method, loan companies would get advantages from the performance and financial systems of range.
In obtain to understand about the universal banking methods, this paper would analyze the exclusive matters, which relevant to the threats and advantages in a universal bank. Moreover, this paper would also focus the whole impact of this organization to the economic climate and the economic climate as a whole.
1.2 PROFITS AND COSTS IN UNIVERSAL BANKING: IMPLICATIONS FOR INDIVIDUAL BANKS
General issue relevant to economical intermediation, include universal loan companies and another type of loan companies, is about asymmetric details . It is the issue that causes expenditures to improve and influence the performance of loan companies. In Worldwide loan companies, the issues that would improve are slightly different with specialised banks; they are similar in that they should cope the threats issue associated with their budget. Although, in universal loan companies, the threats are more bigger due to the broad large range of economical equipment that they organized. Therefore, loan companies have to improve their spending on tracking expenditures that are more complicated than specialised organizations or conventional loan companies.
Possible answer why more loan companies sacrifice to the on the rise, threats and transform it function into the universal banking is that they want to compete and develop their business, to be able to seek a increased possibility profits by serving more choices to their clients. Many loan companies has experienced a great performance after they alter their function, the main concerns are that they could reach better financial systems of range which can reduce the amount of spending in operational expenditures and also a increased chance to get more profits. The research finding which was conducted by Vender, R. (2002, reported in Cheang, 2004) about the performance of revenue in economical conglomerates and the level of both profit and price in universal banking, has demonstrated that both economical conglomerates and universal banking contain good performance in several indicators of bank profitability. His finding also suggests that the sustained development of economical conglomerates and universal banking methods may improve performance in the economic climate.
This opinion is strengthen by another experts, like : George Rich and Christian Walter (1993). They condition that universal loan companies which posse advantages over specialised organizations, are able to take advantage of reduction in the average price of production and scope in banking. It is essential for loan companies that operate on a international level and to be able to fulfill customer needs with a large range of economical solutions. They also mention a vintage example how universal loan companies in some nations around the world, such as : Europe, Malaysia and more Europe has experienced advantages by operating universal banking. In addition, they also condition that the fear if universal bank would pressured specialised organizations has not proven. In Europe and Malaysia, for example, specialised organizations could achieve a better improvement with regards to cooperating with big loan companies. Worldwide loan companies are one of prospective industry channel which can sell their items directly to the clients, so specialised organizations also get additional return due to the raises in the number of universal loan companies. Therefore, this shows that universal loan companies do not threat other institutions; in fact, they support specialised organizations to promote their items.
According to Fohlin, universal banking would head to a bank's concentration due to the raises the number of branch. Based on Germany's experience, such branching-based development has led to the performance in banking because it could improve financial systems of range in advertising and marketing, and open an enormous chance to enhance diversification and steadiness for loan companies.
A universal bank has unique position to tackle asymmetric details. As stated by Joao A. C. Santos (1998), that a universal bank has prospective advantages on the reduction of agency price and acquires profits due to details advantages. Although in other sides, universal banking also deal with issues relevant to the price, conflict of interest and safety and soundness. But the standard possibility, which is generally occurred in economical intermediation, would decrease substantially because universal loan companies are easier to control over their clients. Most of lenders in universal loan companies are their clients, so they can understand about the capacity of the clients from the details that they gather.
Nicholas Cheang (2004) also points out how universal loan companies could reduce a crucial issue in loan provider, asymmetric details. He suggested that they could preserve a close relationship with their borrowers, by gathering more relevant details to make an essential decision for investment decision. Their advantageous opportunities also vital to optimize the distribution of finance part, because loan companies have already known which investment decision that would give more margins to them. So, they don't need to worry too much about the possibility.
1.3 UNIVERSAL BANKS AND THE STABILITY IN THE FINANCIAL SYSTEM
Financial organization plays an important role with regards to mobilizing resources in the economic climate. Consequently, stability in economic climate is really essential to manage by government to avoid broader implications to the real groups. Financial disasters which occurred in most nations around the world in Asia in 1997 are the vintage examples how importance to save loan companies to recover the economic climate.
As the economical supermarkets, which are handling a large range of economical equipment, they must deal with a probabilities than specialised organizations. As a consequence, this organization needs to be monitored carefully to avoid more implications to the economic climate. According to Benston (1994), the on the rise, threats in universal banking would head to a great issue because it can cause generous distress in the economic climate. Hence, it will greatly improve the possibility to the economy's payment method. In another term, Rime and Strioh (2001) who analyze the economic climate in Europe in which universal banking are becoming more essential in this country, condition that difficulty in tracking large universal loan companies is a major concern. This is the reason why universal bank has to spend more money in tracking price and develop an advanced method in it. In other words, it could say that the consequence of inefficient tracking could head to economical instability. (Cheang, 2004)
A broader large range of universal loan companies in economic climate makes the finance channels of loan companies to the customer are larger than specialised organizations. So, the economic climate will improve because universal loan companies will support more funding. This can be seen by the fact that a universal bank practice in Malaysia has triggered the progress of some corporations performance in this country. (Stiglitz, 1985). It is understandable that when the part of finance can distribute widely and effectively to the prospective corporations, the economic climate will improve. In this context, universal loan companies have performed as the key organization which mobilize finance to the prospective loan provider.
Edwards (1996), has also demonstrated that a universal bank is not just significantly contributed to economic climate from the external resources that they provide, but also from the improvement of the details flows. (cited in Cheang, 2004) Therefore, this shows that universal loan companies have performed a significant role with regards to reducing the standard possibility by providing details about the lending company or clients. Furthermore, the safety of the economic climate would be improved by the existence of universal loan companies.
1.4 CONCLUSION
The development of universal loan companies has to in line with the policy direction of middle bank, because you should keep the stability of economic climate and the economic climate as whole. There are three essential areas that must be concerned relevant to universal bank functions, such as : the strengthened of capital and advanced possibility management method. Consequently, to be able to manage universal bank, people need to be aware about the unique of the possibility type in universal banking. Furthermore, policy maker must also consider about the implication of universal loan companies in economic climate.
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