Retail and Investment Banking

Separation of Retail and Investment Banking

Separation of Retail and Investment Banking

Introduction

In an industry where distribution activities and support can all consume up to 60% of the GNP of a major investment and retail banks, the universal model can constitute a guarantee of competitiveness. The condition is whether to deploy a model of "specialized distribution" around the customer and create shared support centers meet the needs of producers. This is for the bank to align its support processes and refocus its distribution methods on the client. By doing so, the bank limits the adhesion of its business processes to the products it sells. The fundamental objective of the separation of retail banking and investment banking is to prohibit the use of deposits of retail bank for investment purposes. In this essay, I will critically discuss the arguments for and against full separation of investment and retail banking

Discussion

An investment bank is a bank or a division of the bank, which brings together all the activities of advisory, intermediation and enforcement relating to the operations of said high stock (IPO, debt issuance , merger / acquisition) of large corporate clients (companies, investors, etc). Unlike a bank deposit, they do not receive deposits and are therefore seeking cash from other banks, money markets or the Central Bank. They also provide access to capital markets by issuing shares and bonds. This distinction comes from the United States, where it was written into law by the Glass-Steagall Act after the 1929 crash. However, this difference has never gained a foothold in Europe and most European investment banks are part of banking groups who also engage in deposit banking, insurance and others. In contrast, a retail bank is a bank carrying on a trade credit and offer investment products to individual clients: individuals, professionals, businesses small (traders, craftsmen, etc) or medium sized ( SME , PMI ), local authorities and associations, as opposed to banks working with large companies, in contact with other banks and the financial markets. The bank provides retail sales of goods and services, which are sometimes designed and made by specialized structures such as insurance companies or management companies of financial assets. The main argument of proponents of such regulation is the decoupling of the activities of deposit and credit activities of securities and listed securities. It must firstly ensure that depositors' savings being used to bail out market operations at their expense, and also prevent a crisis in the markets does not penalize the real economy by reducing the credit to businesses and individuals.

This can actually increase the cost of credit, lead banks to reduce their size, the alternatives are worse. The total assets of universal banks offering both retail and investment functions are enormous, and are too big to be saved in an event of financial crisis. It is also very unhealthy that the credit be subsidized by speculative activities that relate a little each year, but can cost a ...