The banking industry grew by leaps and bounds and USA led this growth. The growth was facilitated on account of the decline in the interest rates from a high of 17% for a two year treasury note to 5% between the time periods of 1980-1990. During the same period of reference the financial assets grew at a rate approximately twice the rate of the world economy. These kinds of growth rates were experienced in the financial market on account of the advent of the information technology and integration of the world economy into a single unit, the guiding principle being that the money should not be allowed to remain idle and it should be gainfully employed across different countries in different time zones.
Owing to this integration of the financial markets, the Asian countries started making significant strides in the US financial market, which had become the financial nerve centre of the world. Japan became the first country that started making significant investments in various corporations of USA, and it also helped in financing the US government as well. This intervention transformed the US financial market and also had the effect in other major markets of the world. The financial markets in London also saw participation of major oil producing countries of the world.
During this period, investment banking also emerged as a new form of banking that provided investment related services to high values clients as also to institutions. During the same time, mutual funds also emerged as the instruments of investments, especially for the clients who are wary about investing in the market or do not have the time to do so.
With these developments, banks came up with a new nomenclature “universal banking”, under which the banks emerged as the one stop shops for providing all kind of financial services to the clients. Universal banking as a model gained experience first in the markets of Europe and then US markets also adopted the same.
The integration of the markets, however removed the insularity of the financial systems of different countries, as they could not escape from the tremors of decline in the markets. The recent crisis that happened in USA, which was primarily a crisis that was sought of engineered by the investment and universal banking fraternity, and it sent whole of the financial system of the world into a tailspin. It forced even US President Barrack Obama to go on record to castigate the financial wizards for the manner in which they were running the show characterised by maximisation of profits, even at the cost of grinding the world economy to a halt.
By: Suman Rai