Advantages of Universal Banking:

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Advantages of universal banking: •Economies of scale from lower operational costs, i.e., larger scale can avoid the wasteful duplication of marketing, research and development and information gathering efforts. •By offering a broader set of financial products than what a specialized bank provides, a universal bank is able to establish long-term relationship with the customers and provide them with a package of financial services through a single-window. •Flexibility in adapting to the fast changing environment. •Better and innovative products. •Reduction of risk by diversification. • Access to international financial markets. •Higher output due to specialization. Limitations of universal banking: •The failure of a larger institution could have serious ramifications for the entire system in that if one universal bank were to collapse, it could lead to a systemic financial crisis. Thus, Universal Banking could subject the economy to the increased systemic risk. •Universal bankers may be tempted to take excessive risks. In such cases, the government would be forced to step in to save the bank. • Vulnerable to high risks due to investment banking activities coupled with focus on commercial banking activities. •By virtue of their sheer size, universal banks may gain monopoly power in the market, which can have significant undesirable consequences for economic efficiency. •Universal banks may tend to work primarily with large established customers and ignore or discourage smaller and newly established businesses. •Universal banks could use such practices as limit pricing or predatory pricing to prevent smaller specialized banks from serving the market. This argument mainly stems from the economies of scale and scope. •Combining commercial and investment banking gives rise to conflict of interests, as universal banks may not objectively

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