The Financial Services Sector

The strength of a country’s economy depends on its financial services sector. The industry includes Wall Street and the stock exchanges that keep it running, as well as banks, insurance companies, credit unions, mortgage lenders, and consumer finance companies like hire purchase, leasing and housing finance companies which make it possible for consumers to purchase products and services by paying them in installments over time.

Financial services also include companies that manage investment portfolios for individuals and businesses, such as pension funds and private equity firms. They also offer risk management services, helping people protect themselves against financial loss (e.g., life insurance, property and casualty insurance, and liability insurance), as well as provide payment processing services, such as issuing credit cards and electronically transferring money.

Lastly, the financial services sector provides intermediation, which means it channels cash from savers to borrowers. Banks do this by accepting deposits and lending money, while credit unions and mutual fund companies allow members to pool their resources so that one member’s failure does not cripple the entire group. Insurance companies do the same thing, pooling money from many policy holders to pay out the ones who suffer a loss.

All of these activities are vital to the world’s economies, allowing them to grow and expand. The success of a company, for example, often depends on its ability to finance itself by issuing loans and providing other financial services, as well as to expand into other markets through acquisitions. And because a strong, healthy financial services sector is critical to the overall health of an economy, it’s not surprising that governments regulate and oversee the industry.