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The financial services industry is composed of three primary sectors: banking, securities and insurance. Banking is the largest sector in the industry and includes all depository institutions from commercial banks and thrifts to credit unions. In their role as financial intermediaries, banks use what they receive from depositors to make loans. The securities sector consists of securities brokers and dealers, investment banks and advisers and stock exchanges. Together, these entities facilitate the flow of funds from investors to companies and institutions seeking to finance expansions or other projects. The insurance industry is divided into two groups: life/health and property/casualty companies. Many large insurers offer both property/casualty and life/health insurance.
The financial services industry is a growing component of the overall U.S. economy. In 2003, the banking, securities and insurance sectors represented 20.4 percent of gross domestic product (GDP) or $2.5 trillion, up from 18.9 percent in 1996. The financial services industry is expected to experience rapid growth over the next decade due, in part, to the accumulation of private wealth.
Consolidation has changed the nature of the financial services industry. Before the Gramm-Leach-Bliley Financial Services Modernization Act (GLB) was passed in 1999, competition among the various segments of the industry was strictly limited by law. GLB removed many of the Depression era barriers that restricted competition. The passing of the Act spurred many cross-sector mergers. Large multipurpose financial companies now offer retail customers not only traditional deposit and lending services but mutual fund, insurance and brokerage services. For corporate clients, these same companies offer lines of credit as well as payments, risk management and securities underwriting services.
More generally, globalization continues to increase the pressures on financial institutions to acquire scale. More and more money is being spent in global markets. Corporate clients are doing more business abroad. Meeting the needs of customers will continue to
be a powerful impetus for U.S. financial service companies to make acquisitions oversees, as will the opportunity to build a local clientele in these foreign markets.
As a result of deregulation and globalization, consolidation in the U.S. financial service industry has given consumers much the same options for service and convenience as they have in other industries. Individuals and institutions can select from an ever broadening array of financial tools and a number of companies that aim to serve their customers’ needs.
VRC has extensive experience within the financial services industries. We provide a range of transactional, reporting and advisory services through our member firms in the major money centers worldwide. We have served clients involved in mergers, acquisitions, divestitures, leveraged buyouts, recapitalizations, restructurings, public and private financings, and other corporate transactions.
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