Financial services are the companies and institutions that manage money, including banks, credit unions, mortgage banks and lenders, credit-card companies, insurance and pension funds. They provide depository services (like checking and savings accounts) as well as lending of all types, investment management, brokerage, financial leasing, and other forms of credit intermediation.
A strong financial services sector is vital to a healthy economy. Without it, businesses cannot get the funds they need to grow and create jobs. And people would have a hard time purchasing the goods and services they need, because they wouldn’t be able to save or take out loans.
The main job of financial services providers is to channel cash from savers to borrowers. They do this by collecting deposits, which are then invested, usually earning interest. They also provide credit intermediation by assessing the creditworthiness of borrowers and issuing loans. These providers also help redistribute risk by spreading it among many borrowers, so that one or two bad actors don’t cripple the whole system.
While most people think of banks when they think of financial services, there are actually a lot more subsectors within the industry. For instance, a bank can offer deposit and loan services but it can also provide notary and escrow services. Then there are investment banks, which help other companies raise capital by underwriting debt and equity and advising on mergers and acquisitions. And then there are asset managers, which oversee investments for individuals and institutional clients.