The Rise and Fall of Universal Banking: Ups and Downs of a Sample of Large and Complex Financial Institutions Since the Late ‘90s

Abstract

We document the development of the major international banks since the late 1990s, analysing balance-sheet data for 27 large and complex financial institutions. We argue that balance-sheet expansion and business line diversification paved the way for the rise of the universal banking model. This model, apparently sound and efficient in the run-up to the crisis, revealed all its shortcomings when the crisis erupted. European banks displayed greater fragilities in their business models. The changed financial and regulatory landscape that followed has challenged this model further. Many proposed remedies to the global financial crisis appear to push for a return to a narrower model for banking activity.

Keywords: banks, banking crises, financial crises, balance sheets

JEL Classification: G21, G01