Development of Universal Banking and Legal Mechanisms for Financial Consumer Protection: A Lesson on Financial Consumer Protection Failure During us Subprime Financial Crisis 2008

Abstract

This research focuses on the study and analysis of the development and structure of commercial banking business in the form of universal banking in the United States during the period before the economic crisis or subprime financial crisis 2008, and the failure of the consumer protection mechanism that was supposed to protect the benefit of those who used the services of such commercial banks. Both the failure of consumer protection mechanism and the universal banking finally led to the tragic crisis (subprime financial crisis in 2008). The universal banking itself and the then unsound behavior of commercial banks were considered signifi cant causes for financial services or products in the form of predatory lending transactions taking advantage from their own customers who lacked adequate financial knowledge. Another cause was the governance problem. There was a situation of quite a number of financial supervising organizations scattering during the period and thus created the unity of governance. In some cases, there existed within the organizations the role conflict between bank stability (soundness) and consumer protection, the problem of relaxation on practice from authorities’ criteria (financial deregulation) which led to regulation arbitrage and in turn destroyed the level playing field between the commercial banking industry and other financial business as well as the efficiency of customer protection.
This research also found that in Thailand, the current format and development of commercial banking business in the form of universal banking and the mechanism of customer protection are forming a shape that is similar to that of the subprime financial crisis in 2008. As such, to avoid this phenomenon from happening again in Thailand, improvement of consumer protection in all above three aspects namely, commercial banks or operating companies, laws governing bodies and consumers is inevitable. Building better understanding and knowledge of financial services to consumers (financial literacy) will be the effective tool for protecting consumers that will create consumer as well as market confidence in the universal banking business and the high competitive financial business for Thailand.