Understanding Financal Services Industry

Financial services deals with investments management, borrowing and lending of money.  Financial services industry has grown tremendously in past two decades to include not only the traditional commercial banks but also insurance companies, credit card companies, investment fund companies as well stocks and securities companies. With globalization, financial services industry has expanded in to the international markets making the world economy responsive to changes in factors such as interest rates, demand and money supply in major economies.

To understand how the global economy has grown, one only needs to look at how the famous sub prime mortgages in the US in 2008 destabilized the entire world financial services industry leading to its near collapse. Another example is the current Euro zone debt crisis and the effects it is having in the global financial services industry.

Financial services sector is so critical today because all other sector of the economy depend on it for fiscal advice and borrowing for investment. Banks offer loans to investors, insurance and fund companies provide a safe haven for long term savings and investments whereas stock exchange companies provide avenues for investors to own shares in companies that are publicly listed. Through these undertakings financial services companies affect the economic growth by influencing the macro economic factors such as demand, supply, GDP and money supply.

Financial services industry has in the recent past become a sensitive political and security issue that has led governments across the world to pay close attention to the sector. Examples of financial mismanagement scandals that have seen governments put on the spot light include Enron debacle and the recent housing sector crisis in the US and the ongoing debt crisis in the European economies.

From the above analysis, it is clear that financial services industry is the lifeline for all other sectors of the economy and determines the success or failure of government policies and private sector growth.