Benefits and Costs of Integrated Financial Services Providers (IFSP) – State-of-the-Art in Research

Abstract

This paper aims to review the theoretical findings and empirical evidence of the benefits and costs of integrated financial services providers (IFSP) and draw inferences of developing IFSP in emerging markets with special consideration on China. The overall results can not conclude the superiority of IFSP or of segregated financial institutions. In opposite, the evaluation of the integration or segregation of financial institutions should always be embedded in the regulatory and managerial context.

However, we could draw some implications that developing IFSP is of special relevance for emerging countries: The existing dominance of banking institutions in emerging national economies with the co-existence of underdeveloped capital markets can be leveraged for capital market innovation if lending, underwriting and brokerage services are available under one roof for the current client base. Cross-selling of banking and insurance products through bancassurance can better serve retail clients with comprehensive advisory for sophisticated life-time financial planning and can better complement the undeveloped social security system in emerging countries. Relationship banking and bank monitoring can better solve the problem of information asymmetry in emerging markets with lower transparency, underdeveloped corporate governance standard and weaker contract enforcement mechanism.

As China is almost the unique country in the world still with commercial bank law favoring segregated financial system and the current ongoing deregulation process on the incremental trial basis is progressing, understanding the benefits and costs of IFSP can be of special importance as the next cornerstone for China’s banking reform.

Keywords: integrated financial services provider, universal banking, bancassurance

JEL Classification: G20, G21, G28