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Banking-Financial-Markets
The banking industry is the foundation of the financial services group.
Industries
Banking-Financial-Markets
Banking-Financial-Markets

The economy is made up of many different segments called sectors. These sectors are comprised of different businesses that provide goods and services to consumers. The companies that are grouped together in a sector provide a similar product or service. For instance, companies that offer agricultural services make up the agricultural sector. Corporations that provide mobile or cellular telephone services are part of the telecommunications sector. This article looks at the financial services sector, one of the most important segments of the economy.

KEY TAKEAWAYS
» Financial services make up one of the economy's most important and influential sectors.
» Financial services is a broad range of more specific activities such as banking, investing, and insurance.
» Financial services are limited to the activity of financial services firms and their professionals while financial products are the actual goods, accounts, or investments they provide.

Banking Services

The banking industry is the foundation of the financial services group. It is most concerned with direct saving and lending, while the financial services sector incorporates investments, insurance, the redistribution of risk, and other financial activities. Banking services are provided by large commercial banks, community banks, credit unions, and other entities.

Banks earn revenue primarily on the difference in the interest rates charged for credit accounts and the rates paid to depositors. Financial services like these primarily earn revenue through fees, commissions, and other methods like the spread on interest rates between loans and deposits.

Importance of Financial Services Sector

The financial services sector is the primary driver of a nation's economy. It provides the free-flow of capital and liquidity in the marketplace. When the sector is strong, the economy grows, and companies in this industry are better able to manage risk.

The strength of the financial services sector is also important to the prosperity of a country's population. When the sector and economy are strong, consumers generally earn more. This boosts their confidence and purchasing power. When they need access to credit for large purchases, they turn to the financial services sector to borrow.

A strong financial services sector can lead to economic growth while a failing system can drag down a nation's economy.
If the financial services sector fails, though, it can drag a country's economy down. This can lead to a recession. When the financial system starts to break down, the economy starts to suffer. Capital begins to dry up as lenders tighten the reins on lending. Unemployment rises, and wages may even drop, leading consumers to stop spending. In order to compensate, central banks lower interest rates to try to boost economic growth. This is primarily what happened during the financial crisis that led to the Great Recession.

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