Bank holding companies : a better structure for conducting universal banking?

Banking systems in many countries have become increasingly unstable in recent years. At the same time, market forces have pushed banks to expand into a variety of universal banking activities without impairing the stability of the banking system. The basic bank holding company proposal contains three major elements : first, any bank that wants to operate as a universal bank must first form a holding company and then conduct all riskier activities in holding company units rather than directly in the bank. The bank would continue to engage in traditional banking activities that involve the usual level of risk; second, the government would develop laws and regulations designed as safeguards to insulate the bank from any financial problems that might occur in holding company affiliates of the bank; and lastly bank regulatory authorities would impose little or no supervision on holding company units. The use of the bank holding company device to conduct universal banking activities can promise important public benefits including : 1) a sounder commercial banking system; 2) less banking regulation; and 3) greater competitive equality between banking and nonbanking units.