The Development of the Universal Corporate

In the past two decades many changes have occurred in the banks serving the corporate market. This paper seeks to describe how the universal corporate bank as part of the international bank has developed and to assess the future prospects for this form of banking. Financial market changes in the 1980s boosted direct market transacting and threatened conventional commercial banking. In sections 3 to 6, an idealised version of universal corporate bank is described and the policy of international banks to develop joint commercial and investment banking as a response to market changes, is discussed. London based UK, other European and US bank cases are used to illustrate the main themes. Two waves of bank reorganisation in the UK in the late 1980s and in other parts of Western Europe in the 1990s are used as comparison points and as means to provide a strong European dimension to the paper. In section 7, transaction cost theory and banking theory are used to explore this idealised idea of the universal corporate bank, especially the rationale for expansion and reorganisation, for developing close company relations, for acquiring knowledge, and the associated transaction costs. Transaction cost theory is specifically employed to unify the interpretation of case themes concerning the idealised universal bank. Section 8, illustrates the many problems encountered when implementing this ideal during the two waves of development in the 1980s and 1990s. These problems are summarised, and the theoretical framework is used to explore the problems faced by banks when implementing the ideal. In section 9, we consider the future of the universal corporate bank. A more limited form of universal corporate bank is identified as the current solution adopted by US and UK banks. A small number of other large European banks are still pursuing the more general model. In section 10, we draw conclusions for further banking and finance research. We also explore some of the regulatory implications of the development of the corporate bank.