Financial services are essential for an economy to function, allowing individuals with money to save to buy goods and services while also making it possible for those with money to borrow. Whether you need a credit card or an insurance policy, the companies that provide them are part of the financial services industry.
The providers of these services include banks, credit unions, insurance companies, brokers, investment and hedge funds, and many other entities. In addition, some of these services are provided by governments and nonprofits.
Banks and other financial institutions act as middlemen between depositors (people who have money they want to save) and borrowers (people who need loans). They collect deposits from people who have money, pool those deposits, and then lend them to people who need them.
This intermediation helps people who want to save money to be more sure that their savings will be available when they need them. It also redistributes risk so that people who want to borrow money don’t have to worry about the possibility of not repaying their loans.
Another important benefit of the financial services industry is its ability to enhance economic dynamism. Its activities help to ensure that businesses get the funds they need to grow and eventually earn more profits.
In recent years, banks and other financial services firms have broadened their scope to accommodate more customer needs and preferences. This has been driven by market forces and the deregulation of financial markets. In the United States, for example, the Glass-Steagall Act was repealed in the late 1990s, opening the door to more integration between banking and securities, asset management, and insurance.