Financial services

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Financial services are the economic services provided by the finance industry, which encompasses a broad range of organizations that manage money, including credit unions, banks, credit card companies, insurance companies, accountancy companies, consumer finance companies, stock brokerages, investment funds and some government sponsored enterprises.

As of 2004, the financial services industry represented 20% of the market capitalization of the S&P 500 in the United States.[1] The U.S. finance industry comprised only 10% of total non-farm business profits in 1947, but it grew to 50% by 2010.[2] Over the same period, finance industry income as a proportion of GDP rose from 2.5% to 7.5%, and the finance industry's proportion of all corporate income rose from 10% to 20%.[3]

The history of financial services[edit]

The term "financial services" became more prevalent in the United States partly as a result of the Gramm-Leach-Bliley Act of the late 1990s, which enabled different types of companies operating in the U.S. financial services industry at that time to merge.[4]

Companies usually have two distinct approaches to this new type of business. One approach would be a bank which simply buys an insurance company or an investment bank, keeps the original brands of the acquired firm, and adds the acquisition to its holding company simply to diversify its earnings. Outside the U.S. (e.g., in Japan), non-financial services companies are permitted within the holding company. In this scenario, each company still looks independent, and has its own customers, etc. In the other style, a bank would simply create its own brokerage division or insurance division and attempt to sell those products to its own existing customers, with incentives for combining all things with one company.

Banks[edit]

Commercial banking services[edit]

A "commercial bank" is what is commonly referred to as simply a "bank". The term "commercial" is used to distinguish it from an "investment bank," a type of financial services entity which, instead of lending money directly to a business, helps businesses raise money from other firms in the form of bonds (debt) or stock (equity).

The primary operations of banks include:

Investment banking services[edit]

Foreign exchange services[edit]

Foreign exchange services are provided by many banks and specialist foreign exchange brokers around the world. Foreign exchange services include:

Investment services[edit]

Insurance[edit]

Other financial services[edit]

Financial crime[edit]

UK[edit]

Fraud within the financial industry costs the UK (regulated by the FSA) an estimated £14bn a year and it is believed a further £25bn is laundered by British institutions.[9]

Market share[edit]

The U.S. finance industry comprised only 10% of total non-farm business profits in 1947, but it grew to 50% by 2010.[2] Over the same period, finance industry income as a proportion of GDP rose from 2.5% to 7.5%, and the finance industry's proportion of all corporate income rose from 10% to 20%. The mean earnings per employee hour in finance relative to all other sectors has closely mirrored the share of total U.S. income earned by the top 1% income earners since 1930. The mean salary in New York City's finance industry rose from $80,000 in 1981 to $360,000 in 2011, while average New York City salaries rose from $40,000 to $70,000. In 1988, there were about 12,500 U.S. banks with less than $300 million in deposits, and about 900 with more deposits, but by 2012, there were only 4,200 banks with less than $300 million in deposits in the U.S., and over 1,800 with more.[3]

The financial services industry constitutes the largest group of companies in the world in terms of earnings and equity market capitalization. However it is not the largest category in terms of revenue or number of employees. It is also a slow growing and extremely fragmented industry, with the largest company (Citigroup), only having a 3% US market share.[10] In contrast, the largest home improvement store in the US, Home Depot, has a 30% market share, and the largest coffee house Starbucks has a market share of 32% .

See also[edit]

References[edit]

  1. ^ "The Mistakes Of Our Grandparents?". Contrary Investor.com. February 2004. Retrieved 2009-02-06. 
  2. ^ a b Soltas, Evan (February 24, 2013). "The Rise of Finance". Economics and Thought. Retrieved 17 March 2013. 
  3. ^ a b Soltas, Evan (February 27, 2013). "5 More Graphs on Finance". Economics and Thought. Retrieved 17 March 2013. 
  4. ^ "Bill Summary & Status 106th Congress (1999 - 2000) S.900 CRS Summary - Thomas (Library of Congress)". Retrieved 2011-02-08. 
  5. ^ "Private Banking definition". Investor Words.com. Retrieved 2009-02-06. 
  6. ^ "How Swiss Bank Accounts Work". How Stuff Works. Retrieved 2009-02-06. 
  7. ^ Prudential: Securities Processing Primer
  8. ^ "Price comparison sites face probe". BBC News. 2008-01-22. Retrieved 2009-02-06. 
  9. ^ "Watchdog warns of criminal gangs inside banks". The Guardian (London). 2005-11-16. Retrieved 2007-11-30. 
  10. ^ The Opportunity: Small Global Market Share, Page 11, from the Sanford C. Bernstein & Co. Strategic Decisions Conference – 6/02/04