Financial Services Industry

• The financial services industry is a collection of various institutions that, directly or indirectly, help businesses and individuals achieve their commercial and lifestyle goals. A vibrant, key part of the global economy, the financial sector includes retail and investment banks, hedge funds, private equity firms and savings-and-loans institutions. Public officials attempt to set sound procedures to monitor the activities of financial institutions, investigating instances of inappropriate transactions, such as predatory lending and insider-trading cases. Regulatory agencies may add depth and rigor to the probes if they believe the practices are widespread. Predatory lending refers to unfair or deceptive practices that some lenders use during the loan origination process. Insider trading means buying or selling corporate stocks based on information not yet published.
  
  

Economic Relevance

• The financial sector plays a key role in the global marketplace. Retail banks and savings institutions collect clients' deposits and advance loans to other market players seeking funds. Investment banks provide valuable advice to businesses seeking financing on stock markets, helping them issue equity and debt shares. Asset management firms, such as hedge funds, administer funds on investors' behalf.
  
  

Risk Management

• Investors don't like a bank that consistently posts substantial losses, especially if these result from poor credit-risk management. The financial institution could see its share prices drop on stock markets, as security-exchange players may interpret the lower profits as top leadership's failure to closely watch risk management. This refers to tools, methodologies and procedures that a company relies on to detect, monitor and assess operating exposures, such as market and credit risks.
  
  

Importance

• In times of economic uncertainty, investors flee for safer ground, preferring to pour money into less risky and more profitable ventures. Sound risk management helps a company prevent losses stemming from market and credit risks as well as exposures resulting from technological malfunctions. Market risk is the loss expectation coming from unfavorable changes in share values with respect to a firm's portfolio. Credit risk emanates from a business partner's inability to repay a loan.