Are German-Type Universal Banks Superior In Performance To Other Types Of Universal Banks?

Are German-Type Universal Banks Superior In Performance To Other Types Of Universal Banks?

曾惟苓 林韻茹

OutlineOutline

Introduction Types of Universal Banking System Conflicts Between Theory & Research Empirical Analysis Conclusion Comment

IntroductionIntroduction

Change in financial structurea) New competitive style

• Financial Disintermediation• Financial Innovation• New Information Technologies

b) Financial Globalization

Effect a) on demand and supply side of financial service

Effect b) deregulation

Strategiesa) M&Ab) Alliance c) Become specialized banksd) Set up universal banks

Definition of Universal Bank

Definition of Universal Bank

“Universal banking means that banks are permitted to offer all of the various kinds of financial services. This includes classical banking activities, like the credit and deposit business, as well as investment services, securities placement and brokerage, and even insurance activities, real estate trading, and others.”------Theodor Baums

Source: Anthony Saunders, Ingo Walter , 1996 Universal banking : financial system design reconsidered,

Types of Universal Banking System

Types of Universal Banking System

Full IntegrationFull Integration All in house Merit

a) Effect of economies of scope is bestb) Optimal allocation of resourcesc) Profit stability

Demerita) A serious conflict of interestb) Side-effect: bureaucratic mefficienciesc) Hard to audit

Types of Universal Banking System

Types of Universal Banking System

Germany-typeGermany-type Banking and security-related operations in

house; Other operations like insurance by setting up subsidiaries

Preserve most of the merits and demerits of full integration type

Country Germany, France, Italy, the Netherlands,and Switzerland

GermanyGermany 1984 年修正「 German Banking Act 」

Separate wholly owned subsidiaries 在業界扮演之角色

a) 企業重整b) 金援資金短缺之企業c) 有效率的籌劃進行國營企業民營化d) 私人企業公開發行之媒介機構 德國之金融界、產業界或政府當局皆認為其銀行制度較英、

美等國優異 面臨問題

a) 銀行佔有過度的經濟上勢力b) 國內之資本市場被認為相對地缺乏效率

European UnionEuropean Union 1989 年公佈採「 Single Banking

License 」 會員國銀行在母國取得之單一銀行執照後，可跨 越國界至其他會員國設立分行 1989 年公佈採「 Home Country

Control 」原則之「 The Second Banking Directive 」

業務範圍，包括傳統商業銀行與投資銀行業務

Types of Universal Banking System

Types of Universal Banking System

U.K. typeU.K. type Concentrate only on commercial banking

operations; Other operations like insurance and securities by setting up subsidiaries

Merita) Abrupt shock in one part does not spread to the other parts

Demerita) Cannot benefit from the efficiencies of multiple operations

Country Japanese and U.K.

JapanJapan年份 變革法案 內容

1939以前

接近綜合銀行 不得從事次級市場的經紀商業務，但承作公司債或證券業務不受到限制

1948 獨占禁止法 禁止銀行兼營證券業務

1983 銀行法修正案 銀行可承作部份證券業務

1993 金融制度改革法 金融機構可透過子公司方式相互參與彼此業務

1997 獨占禁止法修正案 廢除禁止設立控股公司之規定1997 金融控股公司整備

法允許金融機構成立銀行控股公司、保險控股公司以及證券控股公司從事跨業經營或併購

1998 金融體系改革法 允許金融控股公司以設立子公司之方式參與不同金融業務

Types of Universal Banking System

Types of Universal Banking System

U.S. typeU.S. type Holding company possesses separated banks and

non-banks subsidiaries Merit

a) A loss in one subsidiary does not spread to other subsidiariesb) Auditing is more feasible than other systems

Demerita) High cost of establishmentb) Hard to take advantage of economies of scope

Country U.S. , Taiwan

U.SU.S年份 變革法案 內容

1933 Glass-Steagall 禁止銀行與證券公司形成關係企業1956 Bank Holding

Company規範多角銀行控股公司， 限制銀行控股公司從事非銀行業務

1970 BHC Amendments

規範單一或多角銀行控股公司， 限制銀行控股公司從事保險業務

1970~1986

Regulation Y

Amendments

FED 准許銀行控股公司擁有投顧與經紀公司

1987~1989

Federal Reserve

OrdersFED 准許銀行控股公司設立「 Section 20 Subsidiaries 」關係企業， 證券業務收入比重限制，由 5﹪ 提高至 10﹪

1996~1997

Regulation Y and

Federal Reserve Orders

FED 提高「 Section 20 Subsidiaries 」證券業務收入比重限制至 25﹪

1999 Gramm-Leach Bliley Act

在『 Financial Holding Company （ FHC ）』的架構下得允許銀行、證券及保險公司形成關係企業

Theoretically speakingTheoretically speaking Major benefit of universal banks is

supposedly the economies of scopeForestieri(1993): two source of economies of scope

a) Demand side• Crete new demands by meeting a

variety of customers’ needsb) Supply side

• Overall costs can be lowered because computer networks and customer info can be shared

QuestionQuestion

In comparison with specified banks, are Universal Banking Systems more efficient?

Some researchers have done the research In terms of economies of scope, German-

type universal banks are more advantageous than the U.K. type or U.S. type. Is it true?

Sul, W., and J.S. Oh

Test empiricallyTest empirically

different resultsWHY?different resultsWHY? Problem of classification

a) By country follow country’s financial system

Now

different resultsWHY?different resultsWHY?

Problem of classificationb) By bank

according to the portion of a bank’s non-commercial activities, not financial regulation

Purpose of the researchPurpose of the research

Classify banks into Specified Banking System and Universal Banking System

Hard work

German-type V.S Other Universal Banking type German-type preserves most of the merits and demerits of full

integration type

Sul, W., and J.S. Oh(1999)Sul, W., and J.S. Oh(1999) Are German-Type Universal Banks Superior In

Performance To Other Types Of Universal Banks? Samples: 8 countries, 371 banks

a) German-type : total 219 banks France, Germany, Italy, the Netherlands, Switzerland b) Other universal banking systems : total 152 banks Japan, U.K., U.S.

Period: 1988~1995 fiscal years

Research ModelResearch Model

1

, 1,..., ; 1,...,p

it i itk k itk

Y a rBTYPE X B u i N t T

itY

it1

Yp

i itk k itk

BTYPE X B u

Yit: dependent variable;

BTYPEi: dummy variable representing each bank’s type;

Xitk: variables relating each bank’s internal resources and

market enviroments

Uit: Vi + ei + ; it

VariablesVariables Dependent variable(Yit) -Net Profit to Assets(NPTA) -Net Profit to Equity(NPTE) Independent variables(Xitk)

-internal resource-related ASSET,EARATIO,NIM,COST,LOANS,LIQ

-market-related

INVGDP,MMR,MINDEX

Dummy variableDummy variable

BTYPE -German-type universal banks (1)

e.g.France,Germany,Italy,the Netherlands -Other types of universal banks (0)

e.g.Japan,the U.K.,the U.S.

Empirical analysis Empirical analysis

German-type universal banks are not superior in

performance to other types of universal banks

Bank size & Economies of scopeBank size & Economies of scope Positive relation between size and performance -more resources -diversification strategies Sample Classification (based on total assets in 1995)

1.The World Largest 1000 Banks(N=187) -German-type 63 -other type 124 2.Other Banks (N=184) -German-type 156 -other type 28

SummerySummery

Economies of scale attains better economies of scope. Large banks: -performance does not significantly different Medium & small banks: -other types of universal banks are superior Diversification vs. Specialization

Type comparisonType comparison

There are differences in the performance determinants between German-type universal banks and other types of universal banks.

-LIQ vs.LOANS

c.f. Sul,W.,”Do universal banks in major European countries have better performance compared to specialized banks?:empirical investigation,”Journal of Financial Management and Analysis(1:1998)

ConclusionConclusion

Theoretically,German-type universal banks can make the best use of “economies of scope.”

Contrary to theory, the German-type universal banks’ performance is less than other types of

universal banks. Economies of scope require the size effect at the same time.

CommentsComments

Data selection Time (1988~1995) too short to reveal the synergy effect

Other relevant factors

Other ReferencesOther ReferencesLang, G.,and Welzel, P., “Efficiency and Technical progress in banking : Empirical results for a panel of German cooperative banks,” Journal of Banking and Finance ( 20:1996 ) A panel of German cooperative banks (N=757) 1989~1992 Translog cost function economies of scale and economies of scope Agency problem ?

Other ReferencesOther ReferencesSul,W.,”Do universal banks in major European countries have better performance compared to specialized banks?:empirical investigation,”Journal of Financial Management and Analysis (1:1998 ) Germany,France,Italy,Netherlands and Switzerland Universal banks & specialized banks (each of 2100) 1990~1995 Universal banks have performance premium. Specialized banks are comparatively small size and

have competitive advantage with cost efficiency.

Thanks for your attention ! !

Thanks for your attention ! !