The 

financial industry, or financial services industry, includes a wide range of

companies and institutions involved with money, including businesses providing money
management, lending, investing, insuring and securities issuance and trading services.
The following institutions are a part of the financial industry:

 Banks

 Credit card issuers

 Insurance companies

 Investment bankers

 Securities traders

 Financial planners

 Security exchanges

Financial Industry: History

The major events that have shaped the modern finance industry are:

 The Great Depression (1929): The Great Depression originated in the US with
the Wall Street crash in October 1929. The effects of the depression spread across the
world, especially in the heavy industries. Capital requirements regulation, financial
industry oversights and the insurance of deposit accounts sprang out of this
tumultuous period.
 Asian Financial Crisis (1990s): The Asian Financial Crisis was triggered by the
collapse of Thai baht as the government of Thailand decided to float the
nationalcurrency. The nation had a huge foreign debt at that point, driving it to the
verge of bankruptcy. The crisis rippled across the whole of Southeast Asia and has led
to many emerging market countries to reduce debts and build up foreign currency
reserves.

 Stock Market Downturn (2002): Stock exchanges around the world witnessed a

significant decline in March 2002. It was attributed to the bursting of the ‘Dot-com
Bubble’, which saw major Internet companies going bankrupt.

 Sub-prime Crisis (2007): Credit markets faced major crunch due to large scale
default on loans. It led to the Financial Crisis of 2008 – 2009 and resulted in the
bankruptcy, fire-sale acquisition and government bailouts of finance industry giants
such as Lehman Brothers, Bear Stearns, AIG, Fannie Mae, Freddie Mac, Merrill
Lynch, Wachovia, Northern Rock, Lloyds TSB, HBOS, RBS and the entire banking
system of Iceland. The world economy can expect reduced growth rates and tighter
regulations as a result of this crisis.

Financial Industry: Demand and Supply Drivers

Demands for financial products are driven by risk-reward assessments, which consider:

 Potential Yield

 Risk rating

 Liquidity

 Availability of information
 Access to alternatives

The major supply drivers are:

 Money supply

 Interest rates

 Inflation

 Economic conditions

 Government regulations

Financial Industry: Major Players

According to the Global 2000 (annual report by Forbes), seven of the world’s top 10
companies belonged to the financial industry. These included Citigroup, Bank of
America, HSBC Holdings and JPMorgan Chase. Their combined revenues in 2007 were
worth $645 billion, down from the 2006 high of $785 billion.

According to the Fortune 500 rankings, in 2006 financial services generated $257 billion

in profits, a third of total Fortune 500 profits. In 2008, however, they lost a staggering
$213 billion, a total swing of $470 billion. Big players on the list, such as Citigroup and
Bank of America, may only be alive today thanks to government money.

The finance industry is an industry in itself as well as an ancillary that supports other
industries. Trade and commerce across the world would come to a standstill if there
was no means to fund, pay and protect the transactions, hence the need for
governments to support the financial services industry when companies that are ‘too big
to fail’ are close to collapse.