THE IMPACT OF FINANCIAL CRISIS ON THE UNIVERSAL BANK MODEL

Universal banks are financial conglomerates that offer simultaneously underwriting and insurance services and also act like commercial banks; this business model first seen at the end of the XIX century had experienced difficulties once first major financial crisis hit in early 1930’. In US their existence was marked by a series of strict regulations which didn’t allow “too big to fail” model to develop; in the late 1990’ it encountered a more lax legislation which culminated, in the current subprime turmoil, with the pinnacle of the type in order to accommodate the new challenges of financial globalization. This paper tried to identify potential conflicts of interest within universal banking and find evidence of the means which generate them within institutions that offer multiple financial services and create possibilities of exploiting synergies and economies of scope. It followed the evolution of the regulatory framework and the impact on the financial institutions’ structure, trying to identify remedies to avoid and eliminate conflicts on the selected field. Using a series of examples, it found evidence of the channels through which these conflicts influence market’s informational flows and substantiated the long term implications within financial markets.