Overview Of The Bank And Financial Industry

The bank and financial industry is integral part of this country’s financial system.  The main aspects of this system include commercial lending banks or financial institutions and investment banks, also referred to as brokerage houses.  These two players, along with insurance companies, credit unions and thrift associations play a vital interest in safeguarding our money supply and providing needed capital to you and me in order to fund purchases and fuel economic growth.

There has been much talk recently about the recent brink of financial disaster the United States along with other countries faced.  The genesis of the crisis dates back more than a decade ago but may have been in the works for much longer than that.  The protections and regulatory structure in place failed to keep pace with the rapidly changing financial markets.  As new technology was introduced to drive market innovations, archaic regulatory systems and duplicative oversight efforts produced a regulatory failure of a massive proportion.

History of Banking in the United States
Banking has been a central part of the U.S. financial system since the early days of the republic.  At the time that the constitution was written and a war was waged against the British, it was the banks that financed the cost of the revolution and provided a way for this country to become the economic beacon it is today.

Attempts to nationalize the banking system failed in the growing democracy and gave way to a capitalist model of regional and national banks who would succumb to the oversight of the Federal Reserve Board and Federal Depository Insurance Corporation (FDIC) in the 1930s after the stock market crash of 1929 and the ensuing economic depression that followed.

History of Financial Services
The financial services industry, consisting mainly of brokerage companies who provide capital opportunities to corporations and governments.  The Federal Reserve Board, through the Federal Open Market Committee, buys and sells bonds and other debt instruments used to finance the government. In fact, the Federal government is one of the largest and most active players in the securities markets.

The U.S. Securities and Exchange Commission or SEC has primary oversight responsibility over firms that trade stocks and bonds and deals with public.  The industry is also organize to self regulate itself through what are known as self-regulatory organizations or SROs, such as the New York Stock Exchange (NYSE) and Financial Industry Regulatory Association (FINRA).

Financial Reform and Regulation
There are several current attempts by Congress after the near market crash and failure of several prominent banks and financial firms such as Lehman Brothers, American International Group (AIG) and Washington Mutual Bank (WAMU) due to risky strategies and overleveraging to create a single oversight commission.  This regulatory “super cop” is being proposed to be given the powers to step in at a moment’s notice and take over failing firms that pose a systemic risk to the economy.  Systemic risk is the potential for loss due to the failure of the entire financial system.

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