In contrast to the USA, where universal banking is still legally prohibited, the Second Banking Directive allows European banks to form financial conglomerates and to hold equity stakes in non-financial firms. Financial conglomerates are defined here as financial institutions that combine the conduct of traditional banking activities with insurance-and securities-related activities. These activities can be carried out via integrated in-house departments or through subsidiaries. The directive permits unlimited reciprocal ownership links between commercial banks, insurance companies and investment banks. Moreover the directive also allows universal banking, more or less following the example of German banking. The distinguishing feature is that universal banks may hold equity stakes in non-financial firms. They may vote the shares they own and, if proxy provisions exist, also those they hold in trust for other agents. Holding equity participations in nonfinancial firms is, however, subject to certain limits. Individual stakes in industrial and commercial firms should not exceed 15 per cent of the bank’s capital, while the sum of these holdings must remain below 60 per cent of the capital.