The financial services industry includes thousands of depository institutions, providers of investment products, insurance companies, credit and financing organizations, and the critical financial market utilities. It also includes debt resolution, global payment systems such as Visa and Mastercard, as well as the exchanges that facilitate stock, derivatives and commodity trading.
The core of financial services is deposit-taking and lending services, but it also encompasses the entire range of services that help companies raise and manage capital through the capital markets, such as securities underwriting, mergers and acquisitions, and structured finance. The industry is driven by ever-increasing consumer demands for choice, convenience and customization. At the same time, firms are facing stiff competition and intense regulatory pressures.
Financial services businesses provide consumers with a wide variety of products and tools, including checking accounts, savings and investment opportunities, mortgages, loans and credit cards. These companies also offer advice and guidance to consumers on how to manage their money. In addition, many firms offer wealth management services, which help clients invest and protect their assets.
In the United States, a business that offers financial services is subject to strict regulation by the Federal Reserve and the Office of the Comptroller. This includes a requirement to maintain strong capital ratios, as well as an obligation to meet certain consumer protection standards. In addition, financial services companies must comply with state and local regulations.
Financial services are important to the economy because they help consumers purchase goods and services that would otherwise be out of their price range. They also provide the infrastructure for businesses to grow and expand. For example, a company may need to hire new employees or buy equipment to accommodate increasing demand, and the company must secure funding for these expenses through the capital markets.
Without a healthy financial services sector, economies cannot prosper. For example, if a consumer wants to purchase a car, she must first obtain a loan from a bank. Without access to loans, consumers are less likely to spend money and stimulate the economy.
The financial services industry has a number of subsectors, such as debt resolution, credit reporting and consumer finance. Other areas of the industry include investment banking, which involves underwriting stocks and bonds to help corporations raise capital. Mergers and acquisitions is another area, where firms underwrite and advise on takeovers and other large-scale corporate transactions.
Another crucial subsector of the financial services industry is wealth management, which helps individuals and families invest and protect their assets. These firms advise on asset allocation, retirement planning and estate planning, among other things. Moreover, they also help investors with risk mitigation strategies and provide access to equity and debt capital markets. In this respect, firms such as Morgan Stanley and UBS provide comprehensive financial services to their clients.