Universal banking is a term related to banks providing both investment services and savings and loan options to their customers. Many of the banks in Europe function on the basis of the the universal banking model. The main objectives of such a model are an increased participation in investment strategies, securing clients through saving and loan schemes, development of private sectors and cutting costs for financial services.

Participation in Investments

Universal banking focuses on performance of private firms by directly investing into such entities. By participating on the investment market, such banks can directly exercise decision-making power in the governance of corporations. This objective of universal banking aims to secure the financial interests of companies that have received direct investment and to protect the future development of such institutions. For example, Swiss economist Georg Rich indicates that by aiming to directly participate on the investment market, universal banks in Switzerland want to ensure that the companies that have received investment funds would deal with them properly and will not undertake unreasonable financial decisions.

Savings and Loans

By delivering multiple financial services, universal banking aims to deliver immediate benefits for their clients. This makes such entities quite attractive for people who want to take care of their all financial needs at one place -- they can both apply for an investment scheme and require credit for business development. By providing their clients with saving and loan options, universal banks aim to diversify their range of services and have larger influence on the financial markets. German economist Ralf Elsas from Frankfurt University emphasizes on the fact that by aiming to promote saving and loan programs, universal banks can benefit from different types of clients and obtain more working capital to invest in the future.

Development of Private Sector

Among the main objectives of universal banking is the development of the private sector. As such, banking institutions are highly unlikely to cooperate with governmental funds because of their urgent need to invest money, universal banks target the private sector as a main source of clients. But to have such clients, universal banks need to develop the sector and ensure its stable run and economic growth. This has been revealed by economist Gary Gorton who states that universal banks in Germany are the main contributors for the rapidly expanding private sector in the country.

Cutting the Costs

Since many of the European continental banks are adopting the universal banking approach, it is essential for them to be more competitive on the global market where American and Asian banks offer better prices for providing financial services. The idea of the universal banks is to reduce the costs of their financial services by enlargement -- being able to expand their areas of expertise would empower European banks to engage in more serious price reduction strategies. The European Central Bank has already partially achieved this objective by providing low interest loans to European Union economies.