Financial Holding Company
Keen attention is being paid to the discussion of the introduction of universal banking and discretionary investment business to the banking sector, which was about to be allowed back in 2007, as banks are focusing on private banking as their new source of profit.
These days, local banks are expecting that new business opportunities will be given at this time, with the government looking favorably on it in an attempt to prepare a new vision for the financial industry. Some experts, in the meantime, are saying that universal banking, which can be defined as the total management of customer assets in the joint framework of banking, securities, and insurance, is a better option than discretionary investment.
Discretionary Investment Business or Universal Banking?
Banking sector insiders are making a strong request for the approval of the discretionary investment business, as asset management is planned to grow as a profit source of the private banking industry. The term of discretionary investment business means allowing customers to leave their financial assets to bank discretion. Local securities firms and insurers are engaged in the business now.
The Financial Services Commission (FSC) had a second discussion session on September 2 with working-level private banking managers, following the first held in late July. They insisted more strongly that the discretionary investment business be allowed in the banking sector. It is one of the traditional businesses of stock firms and can be a tool for private bankers to diversify their customers’ investment portfolios. Private bankers are banned from making this type of investment for now, though.
The FSC, on its part, also agrees with the opinion because the banks need to increase their non-interest income such as banking fees rather than interest income. However, it is taking a cautious stance, since interest is intertwined with related parties like brokerage firms.
It is in this context that some experts are suggesting universal banking as an alternative to discretionary investment. It was mentioned during the discussion session on September 2, too. Once it is adopted, the government does not have to worry about whether to allow discretionary investment in the banking industry, since each financial company can provide comprehensive private banking services.
At present, major global investment banks such as Barclays and JPMorgan Chase are run on a universal banking basis, and Korean banks are expected to take a page from their book eventually. Still, the government is refraining from making a comment, as controversies have been raised about universal banking abroad. Former Citigroup CEO Sandy Weill has recently argued that the company be divided into commercial and investment banks.
Total Private Banking in Holding company Framework?
Financial industry experts are predicting that the private banking businesses of banks and securities firms will be integrated in a holding company framework in the end, as the FSC’s discussions about the improvement of the system go on. If the commission gives a green light to bank discretionary investment, the private banking business of banks and stock firms can be merged with each other as an asset management unit in the framework of a single holding company.
“Private banking is not limited to the management of individual customers’ assets, but also covers the idle properties and overseas assets of major corporations and institutional investors,” said a local private banking manager, adding, “With Korean banks having already adopted the holding company structure, it is expected that the private banking of the banking and securities divisions will be combined with each other to form a new profit creation model.”