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FinancialservicesWikipedia,thefreeencyclopedia

Financialservices
FromWikipedia,thefreeencyclopedia

Financialservicesaretheeconomicservicesprovidedbythefinanceindustry,whichencompassesabroadrangeoforganizationsthatmanagemoney,
includingcreditunions,banks,creditcardcompanies,insurancecompanies,accountancycompanies,consumerfinancecompanies,stockbrokerages,
investmentfunds,realestatefundsandsomegovernmentsponsoredenterprises.
Asof2004,thefinancialservicesindustryrepresented20%ofthemarketcapitalizationoftheS&P500intheUnitedStates.TheU.S.financeindustry
comprisedonly10%oftotalnonfarmbusinessprofitsin1947,butitgrewto50%by2010.Overthesameperiod,financeindustryincomeasa
proportionofGDProsefrom2.5%to7.5%,andthefinanceindustry'sproportionofallcorporateincomerosefrom10%to20%.

Contents
1Thehistoryoffinancialservices
2Banks
2.1Commercialbankingservices
2.2Investmentbankingservices
3Foreignexchangeservices
4Investmentservices
5Insurance
6Otherfinancialservices
7Financialcrime
7.1UK
8Marketshare
8.1US
9Seealso
10References
11Furtherreading
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12Externallinks

Thehistoryoffinancialservices
Theterm"financialservices"becamemoreprevalentintheUnitedStatespartlyasaresultoftheGrammLeachBlileyActofthelate1990s,which
enableddifferenttypesofcompaniesoperatingintheU.S.financialservicesindustryatthattimetomerge.[1]
Companiesusuallyhavetwodistinctapproachestothisnewtypeofbusiness.Oneapproachwouldbeabankwhichsimplybuysaninsurancecompany
oraninvestmentbank,keepstheoriginalbrandsoftheacquiredfirm,andaddstheacquisitiontoitsholdingcompanysimplytodiversifyitsearnings.
OutsidetheU.S.(e.g.,inJapan),nonfinancialservicescompaniesarepermittedwithintheholdingcompany.Inthisscenario,eachcompanystilllooks
independent,andhasitsowncustomers,etc.Intheotherstyle,abankwouldsimplycreateitsownbrokeragedivisionorinsurancedivisionandattempt
tosellthoseproductstoitsownexistingcustomers,withincentivesforcombiningallthingswithonecompany.

Banks
Commercialbankingservices
A"commercialbank"iswhatiscommonlyreferredtoassimplya"bank".Theterm"commercial"isusedtodistinguishitfroman"investmentbank,"a
typeoffinancialservicesentitywhich,insteadoflendingmoneydirectlytoabusiness,helpsbusinessesraisemoneyfromotherfirmsintheformof
bonds(debt)orstock(equity).
Theprimaryoperationsofbanksinclude:
Keepingmoneysafewhilealsoallowingwithdrawalswhenneeded
Issuanceofchequebookssothatbillscanbepaidandotherkindsofpaymentscanbedeliveredbypost
Providepersonalloans,commercialloans,andmortgageloans(typicallyloanstopurchaseahome,propertyorbusiness)
Issuanceofcreditcardsandprocessingofcreditcardtransactionsandbilling
Issuanceofdebitcardsforuseasasubstituteforcheques
AllowfinancialtransactionsatbranchesorbyusingAutomaticTellerMachines(ATMs)
ProvidewiretransfersoffundsandElectronicfundtransfersbetweenbanks
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Facilitationofstandingordersanddirectdebits,sopaymentsforbillscanbemadeautomatically
ProvideoverdraftagreementsforthetemporaryadvancementoftheBank'sownmoneytomeetmonthlyspendingcommitmentsofacustomerin
theircurrentaccount.
Provideinternetbankingsystemtofacilitatethecustomerstoviewandoperatetheirrespectiveaccountsthroughinternet.
ProvideChargecardadvancesoftheBank'sownmoneyforcustomerswishingtosettlecreditadvancesmonthly.
ProvideacheckguaranteedbytheBankitselfandprepaidbythecustomer,suchasacashier'scheckorcertifiedcheck.
Notaryserviceforfinancialandotherdocuments
Acceptingthedepositsfromcustomerandprovidethecreditfacilitiestothem.
SellInvestmentproductslikeMutualfundsetc.

Investmentbankingservices
Capitalmarketsservicesunderwritingdebtandequity,assistcompanydeals(advisoryservices,underwriting,mergersandacquisitionsand
advisoryfees),andrestructuredebtintostructuredfinanceproducts.
PrivatebankingPrivatebanksprovidebankingservicesexclusivelytohighnetworthindividuals.Manyfinancialservicesfirmsrequireaperson
orfamilytohaveacertainminimumnetworthtoqualifyforprivatebankingservices.[2]Privatebanksoftenprovidemorepersonalservices,such
aswealthmanagementandtaxplanning,thannormalretailbanks.[3]
Brokerageservicesfacilitatingthebuyingandsellingoffinancialsecuritiesbetweenabuyerandaseller.Intoday's(2014)stockbrokers,
brokeragesservicesareofferedonlinetoselftradinginvestorsthroughouttheworldwhohavetheoptionoftradingwith'tied'onlinetrading
platformsofferedbyabankinginstitutionorwithonlinetradingplatformssometimesofferedinagroupbysocalledonlinetradingportals.

Foreignexchangeservices
Foreignexchangeservicesareprovidedbymanybanksandspecialistforeignexchangebrokersaroundtheworld.Foreignexchangeservicesinclude:
Currencyexchangewhereclientscanpurchaseandsellforeigncurrencybanknotes.
Wiretransferwhereclientscansendfundstointernationalbanksabroad.
Remittancewhereclientsthataremigrantworkerssendmoneybacktotheirhomecountry.
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Investmentservices
Assetmanagementthetermusuallygiventodescribecompanieswhichruncollectiveinvestmentfunds.Alsoreferstoservicesprovidedby
others,generallyregisteredwiththeSecuritiesandExchangeCommissionasRegisteredInvestmentAdvisors.Investmentbankingfinancial
servicesfocusoncreatingcapitalthroughclientinvestments.
HedgefundmanagementHedgefundsoftenemploytheservicesof"primebrokerage"divisionsatmajorinvestmentbankstoexecutetheir
trades.
Custodyservicesthesafekeepingandprocessingoftheworld'ssecuritiestradesandservicingtheassociatedportfolios.Assetsundercustodyin
theworldareapproximatelyUS$100trillion.[4]

Insurance
InsurancebrokerageInsurancebrokersshopforinsurance(generallycorporatepropertyandcasualtyinsurance)onbehalfofcustomers.Recently
anumberofwebsiteshavebeencreatedtogiveconsumersbasicpricecomparisonsforservicessuchasinsurance,causingcontroversywithinthe
industry.[5]
InsuranceunderwritingPersonallinesinsuranceunderwritersactuallyunderwriteinsuranceforindividuals,aservicestillofferedprimarily
throughagents,insurancebrokers,andstockbrokers.Underwritersmayalsooffersimilarcommerciallinesofcoverageforbusinesses.Activities
includeinsuranceandannuities,lifeinsurance,retirementinsurance,healthinsurance,andproperty&casualtyinsurance.
F&IFinance&Insurance,aservicestillofferedprimarilyatassetdealerships.TheF&Imanagerencompassesthefinancingandinsuringofthe
assetwhichissoldbythedealer.F&Iisoftencalled"thesecondgross"indealershipswhohaveadoptedthemodel
ReinsuranceReinsuranceisinsurancesoldtoinsurersthemselves,toprotectthemfromcatastrophiclosses.

Otherfinancialservices
Bankcardsincludebothcreditcardsanddebitcards.AccordingtotheNilsonReport,BankOfAmericaisthelargestissuerofbankcards
(http://www.quora.com/WhichbanksarethelargestissuersofVISAcreditdebitcards).
CreditcardmachineservicesandnetworksCompanieswhichprovidecreditcardmachineandpaymentnetworkscallthemselves"merchantcard
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providers".
IntermediationoradvisoryservicesTheseservicesinvolvestockbrokers(privateclientservices)anddiscountbrokers.Stockbrokersassist
investorsinbuyingorsellingshares.Primarilyinternetbasedcompaniesareoftenreferredtoasdiscountbrokerages,althoughmanynowhave
branchofficestoassistclients.Thesebrokeragesprimarilytargetindividualinvestors.Fullserviceandprivateclientfirmsprimarilyassistand
executetradesforclientswithlargeamountsofcapitaltoinvest,suchaslargecompanies,wealthyindividuals,andinvestmentmanagementfunds.
PrivateequityPrivateequityfundsaretypicallyclosedendfunds,whichusuallytakecontrollingequitystakesinbusinessesthatareeither
private,ortakenprivateonceacquired.Privateequityfundsoftenuseleveragedbuyouts(LBOs)toacquirethefirmsinwhichtheyinvest.The
mostsuccessfulprivateequityfundscangeneratereturnssignificantlyhigherthanprovidedbytheequitymarkets
Venturecapitalisatypeofprivateequitycapitaltypicallyprovidedbyprofessional,outsideinvestorstonew,highgrowthpotentialcompaniesin
theinterestoftakingthecompanytoanIPOortradesaleofthebusiness.
AngelinvestmentAnangelinvestororangel(knownasabusinessangelorinformalinvestorinEurope),isanaffluentindividualwhoprovides
capitalforabusinessstartup,usuallyinexchangeforconvertibledebtorownershipequity.Asmallbutincreasingnumberofangelinvestors
organizethemselvesintoangelgroupsorangelnetworkstoshareresourcesandpooltheirinvestmentcapital.
ConglomeratesAfinancialservicescompanysuchasauniversalbankthatisactiveinmorethanonesectorofthefinancialservicesmarkete.g.
lifeinsurance,generalinsurance,healthinsurance,assetmanagement,retailbanking,wholesalebanking,investmentbanking,etc.Akeyrationale
fortheexistenceofsuchbusinessesistheexistenceofdiversificationbenefitsthatarepresentwhendifferenttypesofbusinessesareaggregated
i.e.badthingsdon'talwayshappenatthesametime.Asaconsequence,economiccapitalforaconglomerateisusuallysubstantiallylessthan
economiccapitalisforthesumofitsparts.
FinancialmarketutilitiesOrganisationsthatarepartoftheinfrastructureoffinancialservices,suchasstockexchanges,clearinghouses,
derivativeandcommodityexchangesandpaymentsystemssuchasrealtimegrosssettlementsystemsorinterbanknetworks.
Debtresolutionisaconsumerservicethatassistsindividualsthathavetoomuchdebttopayoffasrequested,butdonotwanttofilebankruptcy
andwishtopayofftheirdebtsowed.Thisdebtcanbeaccruedinvariouswaysincludingbutnotlimitedtopersonalloans,creditcardsorinsome
casesmerchantaccounts.

Financialcrime
UK
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FraudwithinthefinancialindustrycoststheUK(regulatedbytheFSA)anestimated14bnayearanditisbelievedafurther25bnislaunderedby
Britishinstitutions.[6]

Marketshare
US
TheU.S.financeindustrycomprisedonly10%oftotalnonfarmbusinessprofitsin1947,butitgrewto50%by2010.Overthesameperiod,finance
industryincomeasaproportionofGDProsefrom2.5%to7.5%,andthefinanceindustry'sproportionofallcorporateincomerosefrom10%to20%.
ThemeanearningsperemployeehourinfinancerelativetoallothersectorshascloselymirroredtheshareoftotalU.S.incomeearnedbythetop1%
incomeearnerssince1930.ThemeansalaryinNewYorkCity'sfinanceindustryrosefrom$80,000in1981to$360,000in2011,whileaverageNew
YorkCitysalariesrosefrom$40,000to$70,000.In1988,therewereabout12,500U.S.bankswithlessthan$300millionindeposits,andabout900
withmoredeposits,butby2012,therewereonly4,200bankswithlessthan$300millionindepositsintheU.S.,andover1,801withmore.
Thefinancialservicesindustryconstitutesthelargestgroupofcompaniesintheworldintermsofearningsandequitymarketcapitalization.Howeverit
isnotthelargestcategoryintermsofrevenueornumberofemployees.Itisalsoaslowgrowingandextremelyfragmentedindustry,withthelargest
company(Citigroup),onlyhavinga3%USmarketshare.[7]Incontrast,thelargesthomeimprovementstoreintheUS,HomeDepot,hasa30%market
share,andthelargestcoffeehouseStarbuckshasamarketshareof32%.

Seealso
Listoflargestfinancialservicescompaniesbyrevenue
Alternativefinancialservices
Financialanalyst
Financialdatavendors
Financialmarkets
Financialtechnology
Financialization
InternationalMonetaryFund
Investmentmanagement
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Listofbanks
Listofinvestmentbanks

References
1. ^"BillSummary&Status106thCongress(19992000)S.900CRSSummaryThomas(LibraryofCongress)"(http://thomas.loc.gov/cgibin/bdquery/z?
d106:SN00900:@@@D&summ2=m&).Retrieved20110208.
2. ^"PrivateBankingdefinition"(http://www.investorwords.com/5946/private_banking.html).InvestorWords.com.Retrieved20090206.
3. ^"HowSwissBankAccountsWork"(http://money.howstuffworks.com/personalfinance/banking/swissbankaccount.htm).HowStuffWorks.Retrieved
20090206.
4. ^Prudential:SecuritiesProcessingPrimer
(http://www.cm1.prusec.com/rschrpts.nsf/$$rschidxw/4A2ACD93260C58E785256FA3005F8D0E/$FILE/PROCESSINGPRIMER250076.PDF)
5. ^"Pricecomparisonsitesfaceprobe"(http://news.bbc.co.uk/1/hi/business/7201345.stm).BBCNews.20080122.Retrieved20090206.
6. ^"Watchdogwarnsofcriminalgangsinsidebanks"(http://money.guardian.co.uk/news_/story/0,1456,1643860,00.html).TheGuardian(London).20051116.
Retrieved20071130.
7. ^TheOpportunity:SmallGlobalMarketShare(http://www.citigroup.com/citigroup/fin/data/p040602.pdf),Page11,fromtheSanfordC.Bernstein&Co.Strategic
DecisionsConference6/02/04

Furtherreading
Porteous,BruceT.PradipTapadar(December2005).EconomicCapitalandFinancialRiskManagementforFinancialServicesFirmsand
Conglomerates.PalgraveMacmillan.ISBN1403936080.

Externallinks
TheroleofthefinancialServicesSectorinExpandingEconomicOpportunity|AreportbyChristopherN.SuttonandBethJenkins|JohnF.
KennedySchoolofGovernment|HarvardUniversity(http://www.hks.harvard.edu/m
rcbg/CSRI/publications/report_19_EO%20Finance%20Final.pdf)
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