Short Motion Studios

1.1 INTRODUCTION

In recent years, universal banking has been growing its popularity in Indonesia. Mandiri Bank, for example, has taken strategy to become Indonesia’s universal bank; this bank has also initiated to develop an integrated financial risk system in terms of sounding financial performance and increasing shareholder value. In Germany, and most developed countries in Europe, universal banks have initiated its operations since nineteen century. There is mounting evidence that in those countries, universal banks have taken an important part in the development of real sectors and the financial system. In those countries, the growing numbers of universal banking practices are really supported by the regulation of central of bank.

Despite, in The United States, they are strict to regulate universal banks by blocking commercial banks from engaging in securities and stock markets practices. They argued that the practice of universal banking might be harmful for the financial system. ((Boyd et.al, 1998) cited in Cheang, 2004) The “risk” might be the key reason why the central bank of The U.S is worried about the universal banking system. Since, if the central of bank allowed banks to adjust their operation to be universal banks, the relationship among, banks, financial and stock markets would be closer. Consequently, this would give an uncertainty to the banks condition and performance. For example, if there were a disaster in stock market, banks would get problems in their financial positions. Thus, they would tend to be insolvent.

In addition universal banks would also threaten the market share of other specialized institutions, because more customers would choose universal banks that offer more option to their investment. Hence, more specialized institutions are likely to be ruined in the U.S financial industry.

One majoring factor, which is triggering a bank to be universal bank, is to increase the profit by enlarging their market share. According to Jo?o A. C. Santos (1998) universal bank itself can be defined as the financial institution, which enlarges its service range in terms of offering a variety of financial products and services in one site. Thus, by operating universal banking, banks could get a greater opportunity to expand to another financial area, such as : financial securities, insurance, hedge funds and etc.

Although the trend of banks has recently tended to universal banks, it is undoubtedly true that universal banks would also face further risks because a wide range of financial services is strongly associated with increasing risks and escalating monitoring costs. These are the major concerns why banks have to implement more advance technology in terms of financial risk management. Moreover, the practices of universal banks would cause significant risks to economy’s payment system. Since, the operation of universal banks connects closely to the financial and stock markets that are very fluctuate in a short term.

To win in the tight competition among financial institutions, banks have to alter their maneuver to lead in the market. Universal bank could be the wise choice for the bank manager, because they can attract more customers with a wide range of services. Furthermore, by altering their operation to the universal banking system, banks would get benefits from the efficiency and economies of scale.

In order to understand about the universal banking practices, this paper would examine the exclusive matters, which related to the risks and benefits in a universal bank. Moreover, this paper would also focus the whole impact of this institution to the financial system and the economy as a whole.

1.2 PROFITS AND COSTS IN UNIVERSAL BANKING: IMPLICATIONS FOR INDIVIDUAL BANKS

General problem related to financial intermediation, include universal banks and another type of banks, is about asymmetric information . It is the main problem that causes costs to increase and influence the performance of financial institutions. In Universal banks, the problems that would increase are slightly different with specialized banks; they are similar in that they should cope the risks problem associated with their financial position. Although, in universal banks, the risks are more bigger due to the wide range of financial instruments that they organized. Therefore, banks have to increase their spending on monitoring costs that are more complicated than specialized institutions or conventional banks.

Possible answer why more banks sacrifice to the escalating risks and transform it operation into the universal banking is that they want to compete and expand their market share, in order to seek a greater opportunity profits by serving more choices to their customers. Many banks has experienced a great performance after they alter their operation, the main concerns are that they could reach better economies of scale which can reduce the amount of spending in operational costs and also a greater opportunity to get more profits. The research finding which was conducted by Vender, R. (2002, cited in Cheang, 2004) about the efficiency of revenue in financial conglomerates and the level of both profit and cost in universal banking, has proved that both financial conglomerates and universal banking contain good performance in several indicators of bank profitability. His finding also suggests that the sustained expansion of financial conglomerates and universal banking practices may increase efficiency in the financial system.

This opinion is strengthen by another experts, like : George Rich and Christian Walter (1993). They state that universal banks which posse benefits over specialized institutions, are able to take advantage of reduction in the average cost of production and scope in banking. It is essential for banks that operate on a international level and in order to fulfill customer needs with a variety of financial services. They also mention a classic example how universal banks in some countries, such as : Switzerland, Germany and more European countries has experienced benefits by operating universal banking. In addition, they also state that the fear if universal bank would threaten specialized institutions has not proven. In Switzerland and Germany, for example, specialized institutions could achieve a better improvement in terms of cooperating with big banks. Universal banks are one of potential market channel which can sell their products directly to the customers, so specialized institutions also get additional return due to the increases in the number of universal banks. Therefore, this proves that universal banks do not threat other institutions; in fact, they support specialized institutions to market their products.

According to Fohlin, universal banking would lead to a bank’s concentration due to the increases the number of branch. Based on Germany’s experience, such branching-based expansion has led to the efficiency in banking because it could increase economies of scale in advertising and marketing, and open an enormous opportunity to enhance diversification and steadiness for banks.

A universal bank has unique position to tackle asymmetric information. As stated by Joao A. C. Santos (1998), that a universal bank has potential benefits on the reduction of agency cost and acquires profits due to information advantages. Although in other sides, universal banking also face problems related to the cost, conflict of interest and safety and soundness. But the default risk, which is generally happened in financial intermediation, would decrease substantially because universal banks are easier to control over their customers. Most of lenders in universal banks are their customers, so they can understand about the capacity of the customers from the information that they gather.

Nicholas Cheang (2004) also points out how universal banks could reduce a crucial problem in financial institution, asymmetric information. He argued that they could preserve a close relationsh
ip with their borrowers, by gathering more relevant information to make an important decision for investment. Their advantageous positions also vital to optimize the distribution of fund allocation, because banks have already known which investment that would give more margins to them. So, they don’t need to worry too much about the risk.

1.3 UNIVERSAL BANKS AND THE STABILITY IN THE FINANCIAL SYSTEM

Financial institution plays a vital role in terms of mobilizing funds in the economy. Consequently, stability in financial system is really important to manage by government in order to prevent wider implications to the real sectors. Financial disasters which happened in most countries in Asia in 1997 are the classic examples how importance to save banks to recover the economy.

As the financial supermarkets, which are handling a variety of financial instruments, they must face a greater risk than specialized institutions. As a consequence, this institution needs to be monitored closely in order to prevent more implications to the economy. According to Benston (1994), the escalating risks in universal banking would lead to a great problem because it can cause generous distress in the financial system. Hence, it will greatly increase the risk to the economy’s payment system. In another term, Rime and Strioh (2001) who examine the financial system in Switzerland in which universal banking are becoming more important in this country, state that difficulty in monitoring large universal banks is a major concern. This is the reason why universal bank has to spend more money in monitoring cost and develop an advanced system in information technology. In other words, it could say that the consequence of inefficient monitoring could lead to financial instability. (Cheang, 2004)

A wider range of universal banks in financial system makes the fund channels of banks to the customer are larger than specialized institutions. So, the economy will improve because universal banks will support more funding. This can be seen by the fact that a universal bank practice in Germany has triggered the progress of some enterprises performance in this country. (Stiglitz, 1985). It is understandable that when the allocation of fund can distribute widely and effectively to the potential enterprises, the economy will improve. In this context, universal banks have played as the key institution which mobilize fund to the potential lender.

Edwards (1996), has also proved that a universal bank is not just significantly contributed to economy from the external funds that they provide, but also from the improvement of the information flows. (cited in Cheang, 2004) Therefore, this proves that universal banks have played a significant role in terms of reducing the default risk by providing important information about the lender or customers. Furthermore, the safety of the financial system would be improved by the existence of universal banks.

1.4 CONCLUSION

The development of universal banks has to in line with the policy direction of central bank, because it is important to keep the stability of financial system and the economy as whole. There are three important areas that must be concerned related to universal bank operations, such as : the strengthened of capital and advanced risk management system. Consequently, in order to manage universal bank, people need to be aware about the unique of the risk type in universal banking. Furthermore, policy maker must also consider about the implication of universal banks in financial system.

The two most common types of home gyms are universal and free weight home gyms. Universal home gyms can be used to exercise every muscle group in the body, while free weight home gyms are usually less versatile. Universal home gyms on the average are more expensive and take up more space than free weight home gyms. Both universal and free weight models can be the best depending on what the consumer is looking for.

For a household whose members have different fitness goals, a universal home gym is probably the best buy. There are two main types of universal gyms, those that have a weight stack built in, and those that use an alternative form of resistance. The alternative to weights can be long, flexible bows, industrial strength rubber bands, or cables. Both forms of resistance are designed to flow smoothly and help the user avoid any unnatural strain. Care should be taken to ensure that universal home gyms are used properly and the user is not jerking or yanking on the equipment. Improper use could lead to pulled muscles and painful strains.

Both types of universal home gyms have their advantages. Those with weight stacks are often seen as more durable. They are along the lines of what is found in a public gym; however, home gyms with built in weight stacks are also among the most expensive on the market. Prices range from around $800 on the low end to well over $2,500 for a top quality machine. The disadvantages to these home gyms, besides the price, are that they are large, heavy, and immobile.

Universal home gyms that use alternative forms of resistance are less expensive than those with weight stacks. The Weider Crossbow, for example, costs around $500. Home gyms of this type are smaller and lighter than systems with weight stacks. Some alternative resistance home gyms can be compacted to fit in a closet.

Free weight home gyms include some of the best home gyms on the market. They are less expensive, take up less space, and are more traditional than universal home gyms.

A free weight home gym can be very useful for strength and endurance building exercises. There are three main types of free weight home gyms: the weight bench, the power rack and the power cage. One thing that all of these home gyms have in common is that the buyer has to purchase the weights separately. Some people buy more than one type of free weight home gym in order to have more versatile workout options.

A weight bench home gym consists of an adjustable bench, collars, a long metal bar, some dumbbells, a rack, and weights. The user puts the weights on either the bar or dumbbells and secures them with the collars. The bench can be adjusted depending on the type of exercise the user wants to do. A full weight bench home gym can range from a few hundred dollars to over a thousand.

A power rack is a tall structure with a long metal bar and various heights where the bar can be placed. Power racks are good for strength exercises such as squats and lateral lifts. Power racks cost in the range of $500 to $1,000.

A power cage is very similar to a power rack, but it has a more three dimensional structure that limits the forward and backward movement of the user. Power cages on average cost a few hundred dollars more than power racks.

Free weight home gyms, especially weight benches, can be perfect for people whose main goal is to build strength. One problem with free weights is that they can be less safe than universal gyms. It is a good idea to have a second person present to spot the person exercising.

Universal Life: For most folks, there’s a little confusion about what all these different variations of life insurance policies really offer. To help such folks out, these are the basic characteristics of universal life policies…

1) You can review the face amount of your universal life insurance policy upwards or downwards to meet your changing needs. This, however, has to be within the limits provided in the policy. You may have to provide proof of insurability depending on the policy terms.

2) You can decide on the premium amount and payment schedule. Just bear in mind that there may be restrictions on premiums you can choose due to tax laws. And again, your decision has to be within the limits of the policy guidelines.

3) You have the options of a policy that has a guaranteed rate or one that is interest sensitive.

A universal life insurance policy is good for…

1) Taking care of various financial demands that may crop up within the course of a person’s lifetime.

2) Ensuring a guaranteed death benefit alongside the privilege of earning more interest on its cash value.

Place take note that a universal life insurance policy is an interest sensitive policy. This means that you agree to bear part of the investment risk. Your policy’s death benefit and cash value could be eliminated in the future due to a combination of low interest rates and the rising cost of insurance. However, some universal life policies usually have guaranteed cash values. Just make sure you know what yours offers.

Also note that your premium may be increased to keep your policy in force due to rising cost of insurance as you get older and situations where projected returns aren’t met. It’s, therefore, a good idea to check the guaranteed section of your policy.

You should get annual statements showing insurance protection accrued, cash values and paid interest rates. The interest rates will vary annually or even more frequently. The statement spells out clearly how much of your premium money goes towards your insurer’s administrative fees and which part goes towards buying your insurance coverage.

Pay less for a universal life insurance policy by getting and comparing quotes from at least three reputable quotes sites that return universal life insurance quotes.