Financial services is a huge industry that includes banks, credit-card companies, stock brokerage firms, consumer-finance firms, insurance companies, mortgage-lenders and investment funds. The presence of these firms provides the needed funding for people to start businesses, grow existing ones and expand into new sectors. This, in turn, helps increase production and stimulates economic growth by distributing resources to all three primary and secondary sectors equally.
Often, it’s easy to see the different sectors of the financial services industry as distinct entities. Banks, for example, offer checking and savings accounts, while loan associations provide mortgages and personal loans. Brokerage companies offer consumers investment opportunities in stocks, bonds and mutual funds, while credit-card companies like Visa or Mastercard dole out the plastic. But it wasn’t always this way. Until the 1970s, these sector-specific companies kept to their own specialty areas as federal regulations prevented them from offering more than one service.
As competition increased, these sectors started to converge into larger financial conglomerates. The lines between banking, investing and lending also became blurred. Today, for example, banks offer everything from checking accounts to investing in small businesses and real estate through venture capital firms. There are even independent agencies that oversee the operations of different companies to ensure transparency and protect investors. This is an important role for these organizations, which is why the government created them in the first place.