Universal Bank History

Santiago, Arceelyn J. Atty.
Cabañero
2-H Banking
A universal bank participates in many kinds of banking activities and is both

a Commercial bank and an Investment bank. The concept is most relevant in the
United Kingdom and the United States, where historically there was a distinction
drawn between pure investment banks and commercial banks. In the US, this was a
result of the Glass-Steagall Act of 1933.
In the 1970s, a number of smaller crashes tied to the policies put in place
following the depression, resulted in deregulation and privatization of government-
owned enterprises in the 1980s, indicating that governments of industrial countries
around the world found private-sector solutions to problems of economic growth
and development preferable to state-operated, semi-socialist programs. This
spurred a trend that was already prevalent in the business sector, large companies
becoming global and dealing with customers, suppliers, manufacturing, and
information centres all over the world.
Global banking and capital market services proliferated during the 1980s
and 1990s as a result of a great increase in demand from companies, governments,
and financial institutions, but also because financial market conditions were
buoyant and, on the whole, bullish. Interest rates in the United States declined from
about 15% for two-year U.S. Treasury notes to about 5% during the 20-year
period, and financial assets grew then at a rate approximately twice the rate of the
world economy. Such growth rate would have been lower, in the last twenty years,
were it not for the profound effects of the internationalization of financial markets
especially U.S. Foreign investments, particularly from Japan, who not only
provided the funds to corporations in the U.S., but also helped finance the federal
government; thus, transforming the U.S. stock market by far into the largest in the
world.
Nevertheless, in recent years, the dominance of U.S. financial markets has

been disappearing and there has been an increasing interest in foreign stocks. The
extraordinary growth of foreign financial markets results from both large increases
in the pool of savings in foreign countries, such as Japan, and, especially, the
deregulation of foreign financial markets, which has enabled them to expand their
activities. Thus, American corporations and banks have started seeking investment
opportunities abroad, prompting the development in the U.S. of mutual funds
specializing in trading in foreign stock markets.
Such growing internationalization and opportunity in financial services has

entirely changed the competitive landscape, as now many banks have demonstrated
a preference for the “universal banking” model so prevalent in Europe. Universal
banks are free to engage in all forms of financial services, make investments in
client companies, and function as much as possible as a “one-stop” supplier of both
retail and wholesale financial services.
Batas Pambansa Blg. 61 of 1980 introduced the concept of universal

banking in the Philippines, antedating by 19 roughly years the U.S Gramm-Leach-
Bliley Act of 1999, which formally dismantled the wall that the Glass-Steagall Act
erected between banking on one hand and securities business on the other, in
reaction to the 1929 Wall Street Crash that led to the collapse of one-third of the
total number of banks in the Untied Stares. The banks that went under were found
to have speculated heavily in the stock market, or otherwise engaged in the
‘riskier’ business of underwriting and distributing securities. The proponents for
the abandonment of the Glass-Steagall prohibition later argued that bank lending
activities had proved to be as risky as securities operations, and, if at all, the risks
were not as great as depicted by Glass-Steagall supporters.
Unibanking in the Philippines is based on the German concept of

universality in banking, which essentially means that ‘what one bank can do any
other bank can do’. Its adoption in the Philippines was recommended by a joint
IMF-World Bank commission in 1979. The main objective was the removal of the
legislated specialization of financial institutions, which constraint prevented them
from responding to the totality of their clientele’s banking needs. The secondary
objective was to increase the flow of funds into the economy to finance the long
term projects if the government and the private sector. Initially, the official term
used for universal banking was ‘expanded commercial banking’. Now those
engaged in expanded commercial banking are now officially known as universal
banks.

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Santiago, Arceelyn J. Atty.

A universal bank participates in many kinds of banking activities and is both

Nevertheless, in recent years, the dominance of U.S. financial markets has

Such growing internationalization and opportunity in financial services has

Batas Pambansa Blg. 61 of 1980 introduced the concept of universal

Unibanking in the Philippines is based on the German concept of

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