# Universal Banking Explained: Services, History, and Regulations

## What Is Universal Banking?

Universal banking describes a system where financial institutions provide a broad array of services, including retail, commercial, and investment banking, often acting as a comprehensive one-stop shop. Particularly prevalent in Europe, it gained traction in the Unites States with the 1999 [Gramm-Leach-Bliley Act](https://www.investopedia.com/terms/g/glba.asp), which allowed banks to offer diversified services, merging commercial and investment operations. While some argue this diversification spreads risk, others point to potential conflicts of interest. Understanding universal banking involves exploring its service offerings, regulatory background, and its evolvement through key legislative changes over time.

### Key Takeaways

*   Universal banking allows financial institutions to offer a wide range of services, including retail, commercial, and investment banking, often under one roof.
*   The Gramm-Leach-Bliley Act of 1999 marked a significant shift in U.S. banking by permitting commercial banks to engage in investment banking activities.
*   Universal banks benefit from diversified revenue streams, but these can also lead to risks such as conflicts of interest and risk concentration.
*   Changes in regulations, like the Dodd-Frank Act of 2010, have aimed to address risks in banking practices following the 2008 financial crisis.
*   While universal banking is common in Europe, U.S. banks often still specialize, partly due to historical regulatory influences.

## Understanding the Mechanics of Universal Banking

Universal banks can offer loans, deposits, [asset management](https://www.investopedia.com/terms/a/assetmanagement.asp), investment advice, and more. While a universal banking system allows banks to offer a multitude of services, it does not require them to do so. Banks in a universal system may still choose to specialize in a subset of banking services.

Universal banking combines the services of a [commercial bank](https://www.investopedia.com/terms/c/commercialbank.asp) and an investment bank, providing all services from within one entity. The services can include deposit accounts, a variety of investment services, and may even provide insurance services. Deposit accounts within a universal bank may include savings and checking.

In this system, banks can choose their activities but must follow asset and transaction regulations. Since not all institutions participate in the same activities, the regulations in play may vary from one institution to another; however, it is important not to confuse the term "universal bank" with any financial institutions with similar names.

> **Important**
>
> Notable universal banks include Deutsche Bank, HSBC, ING Bank, Bank of America, Wells Fargo, and JPMorgan Chase.

## A Historical Perspective on Universal Banking in the U.S.

Strict regulations slowed the growth of universal banking in the U.S. During the Great Depression, Congress passed the [Glass-Steagall Act](https://www.investopedia.com/articles/03/071603.asp) as part of the Banking Act of 1933. In a measure to prevent further bank failures, the act prohibited universal banking.

Commercial banks were not allowed to provide investment banking services, such as securities trading and brokerage services. The act also created the [Federal Deposit Insurance Corporation](https://www.investopedia.com/terms/f/fdic.asp) (FDIC) to insure U.S. bank deposits.

In 1999, the Gramm-Leach-Bliley Act (GLBA) partially repealed the Glass-Steagall Act, thus making it legal for commercial banks to offer investment banking services. The goal of the GLBA was to modernize the financial services industry by allowing financial institutions to expand the products and services they could offer their customers.

### Impact of Financial Crises on Universal Banking Regulations

Laws impacting universal banking in the U.S. have continued to evolve and change, especially during times of economic upheaval. For example, the 2008 financial crisis caused a number of failures within the investment banking system in the United States. This led to the acquisition or bankruptcy of a variety of institutions. Some notable examples include [Lehman Brothers](https://www.investopedia.com/terms/l/lehman-brothers.asp) and Merrill Lynch.

In response, Congress enacted the [Dodd-Frank Wall Street Reform and Consumer Protection Act](https://www.investopedia.com/terms/d/dodd-frank-financial-regulatory-reform-bill.asp) in 2010, which restricted the ways in which banks could invest by limiting speculative trading and prohibiting involvement with hedge funds and private equity firms.

Opponents of Dodd-Frank criticized the act for going overboard in reducing the market-making activities of banks. In 2018, Congress enacted the Economic Growth, Regulatory Relief, and Consumer Protection Act (also known as the [Crapo Bill](https://www.investopedia.com/terms/c/crapo-bill.asp)), which rolled back some of the Dodd-Frank restrictions.

Despite changing rules, many U.S. financial firms now offer banking, loans, insurance, and investment services, either directly or via partners.

Though some barriers have been removed, universal banks are still less common in the U.S. than in Europe. The United States has banks that focus purely on investments, which is uncommon in the rest of the world.

## What Is an Example of Universal Banking?

Examples of universal banks include JPMorgan Chase, Bank of America, Wells Fargo, UBS, BNP Paribas, Deutsche Bank, and Barclays. All of these banks provide a gamut of banking services, from retail banking to investment banking.

## What Is the Advantage of Universal Banking?

The advantage of universal banking for a customer is that it allows a customer to manage all of their finances under one roof. For example, a person can have a checking account, a loan, a mortgage, asset management services, and other investment services all at one institution. Sometimes they receive benefits or discounts for doing so. For banks, it allows them to make more money by providing a variety of different services and charging for them—multiple revenue streams.

## What Is a Disadvantage of a Universal Bank?

Disadvantages of universal banks include risk concentration for the client and a conflict of interest in certain areas between bank and investor, primarily in regards to interest earned on deposits.

## The Bottom Line

Universal banking allows financial institutions to offer diverse services such as commercial, investment, and retail banking all under one roof, offering convenience and potential cost savings for customers. In the U.S., the evolution of regulations—from the Glass-Steagall Act to the Gramm-Leach-Bliley Act, followed by the Dodd-Frank Act—has aimed to balance innovation in banking services with the protection of clients' interests. Despite regulatory changes, universal banking remains more prevalent in Europe. Customers can benefit from managing their finances in one place, while banks leverage multiple revenue streams, although it carries inherent risks such as potential conflicts of interest and risk concentration.

> **Article Sources**
>
> 1.  Federal Reserve. "[Banking Act of 1933 (Glass-Steagall Act)](https://fraser.stlouisfed.org/title/banking-act-1933-glass-steagall-act-991)."
>     
> 2.  United States Congress. "[S.900 - Gramm-Leach-Bliley Act](https://www.congress.gov/bill/106th-congress/senate-bill/900)."
>     
> 3.  United States Congress. "[H.R.4173 - Dodd-Frank Wall Street Reform and Consumer Protection Act](https://www.congress.gov/bill/111th-congress/house-bill/4173/text)."
>     
> 4.  United States Congress. "[S.2155 - Economic Growth, Regulatory Relief, and Consumer Protection Act](https://www.congress.gov/bill/115th-congress/senate-bill/2155)."