Financial Services Industry Case Study

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HISTORY OF FINANCIAL SERVICES INDUSTRY Financial Services Industry in USA Until the 1970s, the financial services industry in the United States consisted of a few broad segments such as banks and savings/loan agencies that catered to individuals and companies and brokerage firms that assisted in making investments in stocks and bonds. However, during that decade, federal regulations curbing the activities of banks in mutual funds, insurance, and stocks made banks less profitable. The oil embargo and the steep increase in oil prices ordered by the Organization of Petroleum Exporting Countries (OPEC) — the “oil shock” — caused a staggering rise in inflation that made the interest rate on bank deposits unattractive. Soon, companies that offered…show more content…
Perhaps, a most important event was the setting up of Citigroup with the merger of Citicorp and Travelers Insurance. Other mega mergers followed, breaking the compartmentalization of the financial services sector. Today, many banks offer products much beyond their traditional portfolios and many financial enterprises offer conventional banking services. Despite its almost permanent sheen, the financial services industry has had to face many crises. Among the more recent ones are Black Monday (October 19, 1987), when the New York Stock Exchange experienced its biggest single-day loss in history, losing nearly 26 percent of its value; the dot-com bubble of 2000; and the subprime mortgage (housing bubble) crisis of 2007-2009. The Gramm-Leach-Bliley Act passed in the US in 1999 allowed financial services companies to engage in multi-segment transactions, but brought in stringent regulations for protecting the customer and ensuring solvency. But the industry came under strict government scrutiny following the collapse of the Enron Corporation in 2004 and accusations of fraud against top executives of JP Morgan Chase and Merrill Lynch and the bankruptcy of the financial services firm Lehman…show more content…
Although the sector consists of commercial banks, development finance institutions, nonbanking financial companies, insurance companies, cooperatives, mutual funds, and the new “payment banks,” it is dominated by banks, which holds over 60 percent share. The Reserve Bank of India (RBI) is the apex bank of the country, controlling all activities in the financial sector. Commercial banks include public sector and private sector banks and are under the regulatory supervision of the RBI. Development finance institutions include industrial and agriculture banks. Non-banking finance companies (NBFC) provide loans, purchase stocks and debentures, and offer leasing, hire purchase, and insurance services. Insurance companies function in both public and private sectors and are controlled by the Insurance Regulatory and Development Authority (IRDA). India also has a vibrant capital market with stocks exchanges controlled by the Securities and Exchange Board of India (SEBI). According to “India in Business,” a website of the Union Government, India’s banking sector assets were worth $1.8 trillion in the 2014-15 financial
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