The Future of Universal Banking

Universalbanks have long played a leading role in Germany, Switzerland, and other Continental European countries. The principal financial institutions in these countries typically are universal banks offering the entire array of banldng services. Continental European banks are engaged in deposit taldng, real estate and other forms of lending, foreign exchange trading, as well as underwriting, securities trading, andportfolio management. In the Anglo-Saxon countries and in Japan, by contrast, commercial and investment banking tend to be separated. In recent years, though, most of these countries have lowered the barriers between commercial and investment banldng, but they have refrained from adopting the Continental European system ofuniversal banking. In the United States, in particular, the resistance to softening the separation of banking activities, as enshrined in the Glass-Steagall Act, continues to be stiff. The purpose of this paper is to analyze the German and Swiss experience with regard to universal banking. We attempt to show to what extent that experience supports or refutes the arguments against universal banking frequently voiced in the Anglo-Saxon world. Since we are most familiar with the Swiss banking system, we rely heavily on ourownexperience. Basedon this analysis, wedrawvarious conclusions about the future of universal banking. The remainder of the paper is divided into four parts. First, we discuss the salient characteristics of the German and Swiss banldng systems, andattempt to rectifyvarious misconceptions aboutuniversal banking. Second, wecontrast thehistory of Germanand Swiss banking legislation with that of the United States. Third, we consider the