A new approach to measuring universal banking

This paper proposes a novel measure of universal banking constructed using the relative contribution of each operating segment to total assets. Using a sample of international banks, we evaluate the extent to which our proposed metric affects banks’ profitability, stability, liquidity and capitalisation. In addition, we evaluate the implications of a more complex business model, featured by th interaction of universal banking and globalization. Results suggest that a higher degree of diversification enhances financial stability and capitalisation when the Universal Banking Index (UBI) is used as a proxy of universal banking. However, a more complex structure, conceived as the combination of universal and global business models, is associated with lower levels of capital and is less desirable from a financial stability perspective