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Study of Expected Banking Models for the Future

Author: SaiGe
Tutor: JiaMoYue
School: Capital University of Economics
Course: Finance
Keywords: expected future banking models Universal Banking Model Divisional-Focus Model Bancassurance Model Specialized Banking Model developing countries relevant measures
CLC: F830.3
Type: Master's thesis
Year: 2006
Downloads: 660
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Abstract


This thesis aims to study the expected banking models for the future further to the wave of Mergers and Acquisitions (M&A) in the banking industry. Firstly, this thesis provides an overview of bank M&A, and concludes that bank M&A is the basic as well as the direct reason of the probably appearance of future banking models. Therefore, we start by defining the concept of bank M&A;presenting the types of bank M&A, especially the horizontal and mixed M&A;analyzing the reasons as well as the current status of bank M&A. Analysis shows that: the theory of economy of scale, the theory of economy of scope, the theory of risk diversification, the market power theory and so on are the main theories explaining the wave of M&A in the banking industry.Secondly, in the main part also the innovative part of this thesis, we analyze the expected banking models for the future. We think that three models will predominate in the future. What we have called the "Three Important Models": Universal Banking Model, Bancassurance Model and Specialized Banking Model, hi this part, we start by making a comparative study of the two important well known models: Universal Banking Model and Bancassurance Model. While analyzing the Universal Banking Model, we mainly present the characteristics, as well as the advantages and disadvantages of the two typical universal banking models, which are Financial Holding Company Model (the American Model) and Mixed Holding Company Model (the German Model). We found that the "divisional" structure and the existence of "firewall", which prevents financial holding company from financial risk propagation, are the fundamental advantages of the American Model, while the "focus" on separated business units and the share of information, which prevents the mixed holding company from asymmetric information, are the fundamental advantages of the German model. By combining the advantages of these two models, we have proposed a new universal banking model for the future: the Divisional-Focus Model. In addition to this, we have also presented the characteristics of this new model.Actually, universal banks are common known as banks which provide the full range of financial services (commercial bank service + investment bank service + insurance company service). But by analyzing the recent events in the banking industry, wefound that more and more big banks or financial holding corporation are selling their subsidiary insurance company. Guided by these findings, we have achieved the following conclusion: the universal banks which provide mainly two majors services (commercial bank service + investment bank service) with the characteristic of divisional-focus model described above will be probably the model of universal banks in the future instead of those which provide the full range of financial services (commercial bank service + investment bank service + insurance company service). After having presented the two important models mentioned above, we analyze the third important model: Specialized Banking Model. We found that banks which provide specific service in specific financial area, such as credit card, consumer lending specialization bank etc will coexist with Universal Banking Model and Bancassurance Model. Besides analyzing the fundamental theory and the economic factors supporting this assertion, we have also presented the current status of this type of specialized banks. At the end of this section, we provide a flowchart to present the future "Three Important Models".Finally, due to the financial globalization and financial integration, we think that developing countries will face many opportunities and challenges. We have summarized these opportunities and challenges, which includes the following three aspects. The first one is the trend of global financial mixed operation. The second one is the great desire of big banks to grow bigger and bigger. This trend is accelerated all the time. The third one is continuing financial innovation in the banking industry, including the widely application of networking technology. Facing these opportunities and challenges, we think that developing countries should take the following four relevant measures. The first one is to encourage domestic banks to make strategic alliances and cooperation with foreign banks. The second one is to encourage small and medium banks to move forward specialization. The third one is to get a clear understanding of self advantages, develop core business while outsourcing non-core business. And finally the four one is to extend activities strategically in some least developing regions.

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CLC: > Economic > Fiscal, monetary > Finance, banking > Finance, banking theory > Financial organizations, banks
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