The Importance of Financial Services
Financial services refer to economic services provided by the finance industry, which encompasses a broad range of service sector firms that provide money management, investments and insurance. This industry includes banks, credit unions, savings and loan associations, consumer finance companies, mortgage lenders, credit card issuers and securities firms. It also encompasses private equity funds, venture capital providers and angel investors.
It was not always like this; up until the 1990s, each sector of financial services stayed within its specialty. But then came the Gramm-Leach-Bliley Act which repealed the Glass-Steagall Act, allowing banking companies to offer investment, commercial and insurance services, brokerage firms to invest in stocks and bonds and mortgage lenders to finance home buying. This led to the creation of multi-service financial conglomerates and the lines between sectors began to blur.
A strong financial services industry is important for a country’s economy. It provides the free flow of capital and liquidity in the marketplace, which is critical to economic growth. When this industry is healthy, consumers earn more and are able to purchase more goods and services. A weak financial services sector, however, can drag down a nation’s economy.
Apart from being an economic catalyst, the financial services industry also helps backward regions to catch up with other developed areas in terms of development by providing fiscal and monetary benefits through cheaper credit. This also encourages producers to increase their production and earn more profits. It also helps consumers to obtain products and services that improve their standard of living such as credit cards, hire purchase finance, mutual funds, leasing and housing finance.