1.1 Overview of Financial Services Sectors

The financial services industry is a complex web of sectors that keep the economy running. From traditional banking and insurance to cutting-edge fintech, these sectors work together to manage money, provide loans, and protect against risks.

Asset management and investment banking play crucial roles in growing wealth and facilitating big business deals. Meanwhile, emerging areas like fintech are shaking things up, offering new ways to bank, invest, and move money around the global financial system.

Traditional Financial Services

Banking and Insurance

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Top images from around the web for Banking and Insurance

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  Which is the best risk management tool? | CAP Reform View original

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• 

  U.S. Financial Institutions | OpenStax Intro to Business View original

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  New Research: How Deposit Insurance Increases Systemic Risk – The Captured Economy View original

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  Which is the best risk management tool? | CAP Reform View original

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• Banking provides essential financial services to individuals and businesses
  • Includes deposit accounts (checking, savings), loans, and credit cards
  • Banks act as intermediaries, accepting deposits and using those funds to make loans and investments
  • Generate revenue through interest on loans and fees for services
• Insurance offers protection against financial losses due to unexpected events
  • Includes health, life, property, and casualty insurance
  • Insurers collect premiums from policyholders and pay out claims when covered events occur
  • Manage risk by diversifying their portfolios and using actuarial science to price policies

Asset Management and Investment Banking

• Asset management involves managing investments on behalf of clients
  • Includes mutual funds, hedge funds, and private equity firms
  • Asset managers make investment decisions with the goal of generating returns for their clients
  • Charge management fees based on assets under management (AUM)
• Investment banking provides financial services to corporations, governments, and institutions
  • Includes underwriting securities offerings (IPOs), mergers and acquisitions (M&A) advisory, and capital raising
  • Investment banks act as intermediaries between issuers and investors
  • Generate revenue through fees for their services (underwriting spreads, advisory fees)

Emerging Financial Services

Fintech and Financial Innovation

• Fintech refers to the use of technology to deliver financial services in innovative ways
  • Includes mobile banking, peer-to-peer (P2P) lending, robo-advisors, and blockchain applications
  • Fintech companies often aim to disrupt traditional financial services by offering more convenient, accessible, or cost-effective solutions
  • Examples include Square (mobile payments), Lending Club (P2P lending), and Betterment (robo-advising)
• Financial innovation involves the creation of new financial products, services, or processes
  • Includes the development of new types of securities (mortgage-backed securities), derivatives (credit default swaps), and trading strategies (high-frequency trading)
  • Financial innovation can provide benefits such as increased access to credit and risk management tools, but can also introduce new risks and complexities to the financial system

Capital Markets and Financial Intermediation

• Capital markets are the markets where securities (stocks, bonds) are bought and sold
  • Includes primary markets (where securities are initially issued) and secondary markets (where securities are traded among investors)
  • Capital markets facilitate the flow of capital from investors to businesses and governments that need funding
  • Examples include the New York Stock Exchange (NYSE) and the bond market
• Financial intermediation involves the process of matching savers with borrowers
  • Includes banks, insurance companies, and asset managers that pool funds from many investors and channel them to borrowers
  • Financial intermediaries help to reduce transaction costs, manage risk, and provide liquidity to the financial system
  • Enable more efficient allocation of capital in the economy by directing funds to their most productive uses