For conducting regular tasks of banking, one needs to have some kind of bank account.

Today, nearly
every citizen of U.S. would have a personal bank account, but he or she may be very negligent in
using the services. Many people are simply not aware of the services offered by their bank. So, it is
important to know the advantages of personal banking system in order to use the various. Here are
some of the basic advantages of personal banking:

• What better place than a bank to put your hard earned money! Putting your money in a bank is the
safest option. Earlier, when there were no such banks, people used to stuff their mattress with the
money they earned. Even after the banks started offering their services, there were people who were
not very comfortable in using those services. Such people would carry bundles of cash with them. It is
quite apparent that the above options are quite risky since the money kept in a mattress can get
stolen. Using a bank to put your money is the best option to ensure its safety.

• If you do not have a checking account, you would have to carry cash every time you need to pay
any bill or make purchases. How would you redeem your paycheck without a bank? Bank checks easily
let you pay all your utility bills without carrying cash around. Banks also offer debit cards with which
you can pay for your expenses anywhere since, you don’t need cash in hand. You can use a debit card
and the money gets directly deducted from your account.

• Now personal banks offer some high-end services such as online banking and ATMs. These services
let the user access their bank from wherever they want to and customers no longer need to visit their
bank physically. With online banking, you can access your bank account from anywhere, anytime. You
can view the statement; make online transfers between accounts and also shop for loans. ATM lets
you withdraw cash at any time, so you no longer need to take the risk of keeping cash in your home
for emergencies.

• Another advantage of having a bank account is that you may be entitled for an approved loan. If you
want a personal loan, you can easily get approval from the bank with which you have an account. If
you do regular business transactions with your bank and have a long term established relationship, it
would make the approval process very simple and fast. All lenders check the borrower’s checking or
savings account for positive balance to ensure that the borrower would be capable enough to pay back
the loan on time.

These are a few benefits associated with personal banking system. If you are still to open an account
with a bank, I think these benefits are more than enough to make you visit your local bank at the
earliest.
DISADVANTAGES IN UNIVERSAL BANKING :-
1. To meet with the increasing demands of customers.

The establishment of new private sector banks and foreign banks have rapidly changed the
competitive landscape in the Indian consumer banking industry and placed greater demands on
banks to gear themselves up to meet the increasing needs of customers. For the dissatisfied
current day bank customers, it is not only relevant to offer a wide menu of services but also
provide these in an increasingly efficient manner in terms of cost, time and convenience.

E.g.: Today there is a lot of burden on staff members, they are given no or less number of bank
holidays, the time limit is 8-8.

2. Merger with DFI {Biggest Challenge}.

Development Financial Institutions (DFIs) opting for conversion into Universal Banks by
merger/reverse merger routes may also face certain difficult situations on account of Asset
Liability Mismatches, burden of mounting NPAs and differences in regulatory prescriptions
applicable to FIs and banks such as CRR and SLR requirements and priority sector lending. The
asset profile of DFIs in India is predominately of long-term nature, which also includes a very
high level of non-performing assets.

E.g.: NPAs of ICICI and IDBI were transferred to ICICI Bank and IDBI Bank respectively after
their merger.

3. Statutory Liquid Ratio {SLR} and Cash Reserve Ratio {CRR} requirements of DFI.

In case DFIs are converted into banks they would also be subject to the reserve requirement like
banks. CRR and SLR burden that wasn't there for DFI will be applied after its merger with any
bank. This would mean that all liabilities issued by the DFIs in the past would also be subject to
reserve requirements and since the assets structure of DFIs are largely of long term nature it
would be very difficult for them to maintain the required level of SLR/CRR.

4. High cost of funds for DFI.

Cost of deposits is high as the only source of funds is Fixed Deposits having higher Rate Of
Interest. Costs of funds for Fixed Deposit are higher than CASA {Current account Savings
account}. CASA has low cost, as the Rate Of Interest is low. Further, the cost at which DFIs
have been raising resources in the past has generally remained high as compared to banks and
maintenance of CRR/SLR of such liabilities, which may earn lower returns, would adversely
affect the profitability of Universal Banks. Compliance of priority sector lending norms, which
earn lower returns, may also create difficult situations for such bank. Risk Management is one of
the major challenges, where in the financial activity carries with it various risks, which would
need to be identified, measured, monitored and controlled by Universal Banks. The nature of
risks and mitigating techniques for different financial product/services will be different and
therefore, Universal Banks will be required to develop comprehensive system of each
product/service and each kind of risk.

5. Improving risk management systems

With the increasing degree of deregulation and exposure of banks to various types of risks,
efficient risk management systems have become essential. For enhancing the risk management
system in banks, Reserve Bank has issued guidelines on asset liability management and risk
management systems in banks in 1999 and Guidelines Notes on Credit Risk Management and
Market Risk Management in October 2002 and the Guidance Note on Operational risk
management in 2005.

E.g.: Today most banks have stopped personal loans because there is no guarantee, no loans are
granted for travel and tourism, i.e. holiday loans too are stopped.

1. Supervisory and regulatory infrastructure

Another aspect is related to building up of supervisory infrastructure. The regulatory framework

would need to be strengthened so as to cover all aspects of Universal Banking either under
control of one regulator or a co-coordinating mechanism would have to be developed among
different regulators like the Reserve Bank of India, SEBI, Insurance Regulatory, Authority etc.
The regulators will have to frame sound mechanism to protect the interest of all concerned
including the customer, the Universal Banking Institution and the financial system of the
country.

1. Supervisory of financial conglomerates

In view of increased focus on empowering supervisors to undertake consolidated supervision of

bank groups and since the Core Principle for Banking Supervisory issued by the BASEL
committee on Banking Supervision have underscored consolidated supervision as an independent
principle, the Reserve Bank of India had introduced, as an initial step, consolidated accounting
and other quantitative methods to facilitate consolidated supervision. The components of
consolidated supervision include, consolidated financial statements intended for public
disclosure, consolidated prudential reports intended or supervisory assessment of risk and
application of certain prudential regulations on group basis. In due course, consolidated
supervision as introduced above would evolve to cover.

1. Technology improvement and compensation and incentive systems

for employees

It is likely that Universal Banks of roughly the same size and providing roughly the same range
of services may have very different cost levels per unit of output on account of efficiency
differences in the use of labour and capital, effectiveness in the sourcing and application of
available technology, and perhaps effectiveness in the acquisition of productive inputs,
organization designs, compensation and incentive system-and just plain better management.

1. Conflict of interest between commercial and investment banking

Larger the banks, the greater will be the effects of the failure on the system. Also there is the fear
that such institutions, by virtue of their sheer size would gain monopoly power in the market,
which can have undesirable consequences for economic efficiency. Further combining
commercial and investment banking can give rise to conflict of interest.

10. Sharpening skills

The far-reaching changes in the banking and financial sector entail a fundamental shift in the set
of skills required in banking. To meet increased competition and manage risk, the demand for
specialized banking functions, using IT, as a competitive tool has to go up. Special skills in retail
banking, treasury, risk management, foreign exchange, development banking, etc, will need to be
carefully nurtured and built. Thus, the twin pillars of the banking sector i.e. human resource and
IT will have to be strengthened. Thus the need of the day is a combination of improved
technology and quality human resources.

11. Competition

Monopolistic competition among universal banks will decrease their profit margin.

12. Government interferences

Interferences by government in public sector banks through RBI are hampering progress of
universal banks.

13. Present economic recession

Recession is affecting universal banks in a big way as their investment in infrastructure as well
as the establishment expenses is much higher as compared to public sector banks.

Read more:
http://wiki.answers.com/Q/What_are_advantages_and_disadvantages_of_universal_banking#ixzz1HD1UR3mz
Advantages
1. Transaction costs will be eliminated.
For instance, Uk firms currently spend about £1.5 billion a year
buying and selling foreign currencies to do business in the EU.
With the EMU this is eliminated, so increasing profitability of EU
firms.

Advice to young people: You can go on holiday and not have to

worry about getting your money changed, therefore avoiding high
conversion charges.
2. Price transparency.
Eu firms and households often find it difficult to accurately compare
the prices of goods, services and resources across the EU
because of the distorting effects of exchange rate differences.
This discourages trade. According to economic theory, prices
should act as a mechanism to allocate resources in an optimal
way, so as to improve economic efficiency. There is a far greater
chance of this happening across an area where E.M.U exists.

Advice to young people: We can buy things without wrecking our

brains trying to calculate what price it is in our currency.
3. Uncertainty caused by Exchange rate fluctuations eliminated.
Many firms become wary when investing in other countries
because of the uncertainty caused by the fluctuating currencies in
the EU. Investment would rise in the EMU area as the currency is
universal within the area, therefore the anxiety that was previously
apparent is there no more.
4. Single currency in single market makes sense.
Trade and everything else should operate more effectively and
efficiently with the Euro. Single currency in a single market seems
to be the way forward.
5. Rival to the "Big Two".
If we look out in the world today we can see strong currencies such
as the Japanese Yen and The American $. America and Japan
both have strong economies and have millions of inhabitants. A
newly found monetary union and a new currency in Europe could
be a rival to the "BIG TWO".
EMU can be self-supporting and so they could survive without
trading with anyone outside the EMU area.
This fact makes the Euro very strong already, and even George
Soros couldn't affect it (well, hopefully!!!!).
The situation that EMU is in is good as it seems that it can survive
on its own, with or without the help of Japan and U.S.A.
6. Prevent war.
The EMU is, and will be a political project. It's founding is a step
towards European integration, to prevent war in the union. It's a
well known fact that countries who trade effectively together don't
wage war on each other and if EMU means more happy trade, then
this means, peace throughout Europe and beyond (we hope).
 7. Increased Trade and reduced costs to firms.
Proponents of the move argue that it brings considerable economic
trade through the wiping out of exchange rate fluctuations, but as
well as this it helps to lower costs to industry because companies
will not have to buy foreign exchange for use within the EU. For
them, EU represents the completion of the Single European
Market. It is vital if Europe is to compete with the other large trading
blocs of the Far East and North America.
8. The Political agenda.
There is also a political agenda to European bank (the European
System of Central Banks -ESCB), the complete removal of national
control over monetary policy and the partial removal of control over
fiscal policy. Individual nation states will lose sovereignty (i.e. the
ability to control their own affairs). It will be a considerble step down
the road towards political union. There are many in the EU who
faviour economica dn political union and they are very much in
facour ot EMU. There are also many who wish to keep national
sovereignty and are strugging to prevent EMU, whatever its merits
might be, from going ahead.
9. Inflation
From the mid-1980s onwards, there were a number of economists
and politicians who argued that, for the UK at least, EMU provided
the best way forward to achieve low inflation rates throughout the
EU. During the first half of the 1980s high inflation countries, such
as France and Italy were forced to adopt policies which reduced
their inflation rates to something approximating the German
inflation rates to something approximating the German inflation
rate. If they had not done this, the franc and the lira would have
had to be periodically devalued, negating the fixed exchange rate
advantages of the system. Effectively, the German central bank,
the Bundesbank, set inflation targets and therefore monetary
targets for the rest of the EU. At the time, there was much
discussion of why Germany had a better inflation record than many
other European countries. The consensus emerged that it was
because the Bundesbank, the German central bank, was
independant of the German Government. In countries such as the
UK and France, central banks were controlled by governments. If
the UK government decided to loosen monetary policy, for
example, by reducing interest rates, it had the power to order the
Bank of England to carry out this policy on its behalf. There have
always been especially strong pressures before an election for UK
governments to loosen the monetary reins and create a boom in
the economy, with the subsequent increase in inflation following the
election. The Bundesbank, in contrast, was independent of
government. By law it has a duty to maintain stable prices. It can
resist pressures from the German government to pursue reflation
policies if it believes that these will increase inflation within the
economy. Events of the early 1990s have shaken the naieve faith
that linkage to the independent ESBC, the central bank of Europe
would solve all inflationary problems. This is because German
inflation rates in the early 1990s rose to over 4% as Germany
strugged with the consequences of unification. In 1993, inflation
was nearly three times as high in Germany as in the UK and twice
as high as that in France. Some countries, such as France, have
made their central banks independent on the Germany model and
therefore arguably don't need to the EMU link to Germany to
maintained low inflation.The UK has gone a little way towards
giving more power to the central bank by publishing reports of
monthly meetings between the Chancellor of the Exchequer and
the Governenor of the Bank of England. This forces the
Government to justify its monetary policy publically and makes it
harder for it to use interest rates for short term political ends.

Disadvantages
1. The instability of the system.
Throughout most of the 1980s the UK refused to join the ERM
(Exchange rate mechanism). It argued that it would be impossible
to maintain exchange rate stability within the ERM, especially in the
early 1980s when the pound was a petro-currency and when the
UK inflation rate was consistently above that of Germany. When
the UK joined the ERM in 1990 there had been three years of
relative currency stability in Europe and it looked as though the
system had become relatively robust. The events of Sept. 1992,
when the UK and Italy were forced to leave the system, showed
that the system was much less robust than had been thought.
2. Over estimation of Trade benefits.
Some economists argue that the trade and cost advantages of
EMU have been grossly over estimated. There is little to be gained
from moving from the present system which has some stability built
into it, to the rigidities which EMU would bring.
3. Loss of Sovereignty.
On the political side, it is argued that an independent central bank
is undemocratic. Governments must be able to control the actions
of the central banks because Governments have been
democratically elected by the people, whereas an independent
central bank would be controlled by a non elected body. Moreover,
there would be a considerable loss of sovereignty. Power would be
transferred from London to Brussels. This would be highly
undesirabel because national governments would lose the ability to
control policy. It would be one more step down the road towards a
Europe where Brussels was akin to Westminster and Westminster
akin to a local authority.
4. Deflationary tendencies.
Perhaps the most important economic argument relates to the
deflationary tendencies within the system. In the 1980s and 90's
France succeeded in reducing her inflation rates to German levels,
but at the cost of higher unemployent, For the UK, it can be aruged,
that membership of the ERM between 1990 and 1992 prolonged
unnecessarily the recessional period. This is because the
adjustment mechanism acts rather like that of the gold standard.
Higher inflation in one ERM country means that it is likely to
generate current account deficits and put downward pressure on its
currency. To reduce the deficit and reduce inflation, the country has
to deflate its economy. In the UK, it could be argued that the battle
to bring down inflation had been won by the time the UK joined the
ERM in 1990. However, the UK joined at too high an exchange
rate. It was too high because the UK was still running a large
current account deficit at an exchange rate of around 3 Dm to the
pound. The UK government then spent the next two years
defending the value of the pound in the ERM with interest rates
which were too high to allow the economy to recover. Many
forecasts predicted that, had the UK not left the ERM in Sept 1992,
inflation in the UK in 1993 would have been negative (ie prices
would have fallen).The economic cost of this would have been
continued unemployment at 3million and a stagnant economy.
When the UK did leave the ERM and it rapidly cut interest rates
from 10% to five and a half %, there was strong economic growth
and the current account position improved, but there was an
inflation cost.

Another problem that the early 1990s highlighted was that the
needs of one part of Europe can have a negative impact on the rest
of Europe. In the early 1990s, the Germans struggled with the
economic consequences of German reunification. There was a
large increase in spending in Germany with a consequent rise in
inflation. The Bundesbank responded by raising German interest
rates. As a result, there was an upward pressure on the DM as
speculative money was attracted into Germany. Germansy's ERM
partners were then forced to raise their interst rates to defend their
currencies. However, higher interest rates forced most of Europe
into recession in 1992 - 1993. Countries such as France couldn't
then get out of recession by cutting interest rates because this
would have put damaging strains on the ERM. The overall result
was that Europe suffered a recession because of local reunification
problems in Germany. Critics of the ERM and EMU argue that this
could be repeated frequently if EMU were ever to be achieved.
Local economies would suffer economic shocks because of
policies, forced on them, designed to meet the problems of other
parts of Europe.
One way around this would be to have large transfers of money
from region to region when a local area experienced a recession,
e.g. N. Ireland which suffered structural unemployment for most of
the post war period, has had its economy propped up by large
transfers of resources from richer areas of the UK with lower
unemployment. However, regional transfers are very small at the
moment unfortunately. Moreover to approximate the regional
transfers which occur at the moment in, say, Britain, there would
have to be a huge transfer of expenditures from national
governments to Brussels - just what anti Europeans are opposed
to.