Merits of Universal Banking:

The following points are usually raised in favour of universal banking practice.

(i) It promotes economic growth through supply of long-term financing for commerce and industry

(ii) It promotes efficiency through economics of scale and scope

(iii) It fosters competition by opening up various areas of financial and non- financial activities for entry by banks.

Demerits of Universal Banking

The following arguments are often advanced against universal banking practice.

i. It distorts credit allocation to various economic activities because of increased connected lending.

ii. It promotes greater concentration of economic and political power

iii. It leads to conflicts of interest with a bank engaging in more activities that could cope with or difficulty in how to patronize its activities

iv. There is a great potential for banks to engaging in more risk activities which could destabilize the banking system.