Banks realise their business through a series of different products that are placed and sold on the market producing a system of prices and the tightening of business relationships with plenty of diverse and varied customers. In reviewing different bank models, it is possible to distinguish between specialized banks, universal banks and financial conglomerates.
The development of one type rather than another is to be found in the operating efficiency specific to each bank and in the regulatory constraints applied by different countries.
Specialized banks have developed mainly in the United States of America, where the regulator sets restrictions on the expansion of business areas and on the acquisition of shareholdings in non-financial companies1. In this model, monetary resources come largely from short-term debt against small term depositors and require the presence of other types of financial intermediaries, in turn engaged in other business areas. This bank is specialized in improving the quality of their product range by exploiting different instruments from within their budget and off-balance; in addition, since the range of business areas is really limited, the consequences of this situation result in strengthening their image and in improving competition. This model has strengths in achieving economies of scale that result from a reduction in unit costs as production volumes expand, in refining intervention techniques related to rebalance of deadline schedules and in the management of risks associated with interest rates; on the weaknesses side, items can be found with respect to the narrow scope of information in general and the rational use of human resources in times of demand contraction.
The universal banking model has found its space especially in the European context, where the regulation allows the use of a wider range of products within the same bank, with the exception of social security, housing and, until the recent legislation on the financial conglomerates2, the insurance sector. The wide and diversified range of tools makes it difficult to complete the development of business areas. There are elements of flexibility in the use of human resources, that allow monitoring trends and adequately impacting on substitutes in demand for products. Shares in other companies, including insurance companies, fuel the risk of contamination3. Conversely, the extension of tools and the range of funding nurture and facilitate the collection of information that is useful in evaluating claims and consequential choices. Given the wide range of instruments, the flow of incoming data is high and this means that the cost of production of the information benefits from economies of scale. The ability to pursue economies of diversification of production and economies of scope is positive, while dimensional problems and the high cost of administrative and bureaucratic structures are relevant in a negative sense.
As it can be easily imagined, this kind of bank is better than the specialized banks in pursuing integration with insurance intermediaries, thus making agreements or reaching levels of more mature integration. Financial conglomerates can be realized through investments in the equity of financial intermediaries, financial institutions and financial companies exercised by a financial holding company or a financial intermediary.
The processes of aggregation largely draw inspiration from the search for economies over joint production lines, those that involve the use of a single production factor to produce more goods or services and that are therefore linked to technology already available and to the organization of production inputs. This requirement is an essential underpinning for the development of bank-insurance conglomerates. The purpose of aggregation is the improvement of performance indicators of financial undertakings in an attempt to reach the optimum size through the joint exploitation of production factors by avoiding duplication of new skills, especially among the same types of financial intermediaries. It is important to note that, in the processes that see the integration of two different brokers, the most important economic/financial aspects include those of governance. This approach, identified by the term "allfinance", pursues economies due to the advantage of producing or selling a plurality of financial services, seeking synergies of cost and/or income from the units operating in various businesses and belonging to different industries.
With regard to the Italian case with the definition of the European market through the 89/646 Directive, implemented in Italy with the d. lgs. No 481 of 14 December 1992, there was an opportunity to adjust part of the banking legislature. Specifically the implementation of Decree 481/92 introduced in Italy the so-called universal banking model. In particular, this model allows banks to overcome all the constraints of time and management4 (which characterized the model of specialized bank that existed until then), thus allowing credit intermediaries to play through a single organization other activities allowed by the benefit of mutual recognition. The universal bank established to deal with the European competition became similar to the multifunctional groups introduced by the so-called Amato law (218/1990). The new model of universal bank allows a higher degree of freedom to the economic entity of the financial intermediary, and a wider discretion in the choice of the organization by which to operate. In addition to the need to provide the Italian banking system with an instrument to enable a comparison on an equal basis with other European institutions, the transposition of Directive 481/92 gave answers to a number of other requirements of the Italian banking sector, such as the need for restructuring and recapitalization of banks and lending institutions and the public launching through an informal privatization process. Today, the banks authorized by the Bank of Italy are all quite similar to universal banks and they can operate with no limitation on operations and services, and with respect to maturities in the collection and use of funds.
1Prior to the FSMA (Financial Services Modernization Act) of 1999, there were significant restrictions on the merging of banks and insurance companies. Despite the FSMA allowing cross-holdings between the two financial intermediaries, only Citigroup today is an example of a holding company active in the two branches of financial intermediation in the U.S..
3The risk of contamination materializes through an indirect channel (reputation) and a direct channel (capital transfers).
4The adoption of the second banking directive made the principles that had hitherto characterized the banking system vanish: the principle of "time specialization of credit" based on which banks should manage the short-term credit (18 months), while credit institutions should handle medium/long credit; the principle of "institutional pluralism" whereby banks and even a small number of special credit institutions were divided into public and private, with different legal forms; the principle of "separation between bank and industry" whereby to prevent the banking system to be involved in the crises of industrial enterprises: the previous law forbade the relationship of equity participation of banks in business companies and vice versa.
Capriglione F. (2005). "L'ordinamento finanziario italiano". Padova. CEDAM
Desiderio Luigi, Molle Giacomo. (2005) "Manuale di diritto bancario e dell'intermediazione finanziaria", Giuffrè editore.
Guida Roberto. (2004) "La Bancassicurazione: modelli e tendenze del rapporto tra banche e assicurazioni", Cedam editore.
Locatelli Rossella, Morpurgo Cristina, Zanette Alfeo. (2002) "L'integrazione tra banche e compagnie di assicurazione e il modello dei conglomerati finanziari in Europa", Enaudi editore.
Patroni Griffi and Ricolfi. (1997) "La distribuzione bancaria di prodotti assicurativi in banche ed assicurazioni fra cooperazione e concorrenza", Giuffrè editore.
Quagliariello Mario. (2001) "I rapporti tra banche e assicurazioni in Italia e in Europa: aspetti empirici e problemi di regolamentazione", Luiss University Press.
Quagliariello Mario. (2003) "La bancassicurazione: profili operativi e scelte regolamentari", Luiss University Press.
Ruozi Roberto. (2004) "Economia e gestione della banca", Egea editrice.
Editor: Alberto Maria SORRENTINO
© 2009 ASSONEBB