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What Is the Financial Sector?

The financial sector is a section of the economy made up of firms and institutions that provide financial services to commercial and retail customers. This sector comprises a broad range of industries including banks, investment companies, insurance companies, and real estate firms.

KEY TAKEAWAYS

  • The financial sector is a section of the economy made up of firms and institutions that provide financial services to commercial and retail customers.
  • A strong financial sector is a sign of a healthy economy.
  • The financial sector generates a good portion of its revenue from loans and mortgages and thrives in a low-interest-rate environment.
  • The sector is comprised of many different industries including banks, investment companies, insurance companies, and real estate firms.

 

Classification of Financial Sector

The financial sector consists of many different industries ranging from banks, investment houses, insurance firms, real estate brokers, consumer finance firms, mortgage lenders, and real estate investment trusts.

Primarily, the financial sector includes financial institutions, banks, and non-banking financial institutions. Financial institutions provide members and clients with financial services. It is also called financial intermediaries since they act as intermediaries between savers and borrowers.

Banks are financial intermediaries who provide lenders with capital to generate revenue and accept deposits. They are strictly regulated as they provide market stability and consumer protection. Banks include:

  • Public banks
  • Commercial banks
  • Central banks
  • Cooperative banks
  • State-managed cooperative banks
  • State-managed land development banks

Non-banking financial institutions are financial institutions, not banks, that facilitate financial services, such as investment, risk pooling, and market brokering. They generally don't have full banking licenses.

  • Finance and loan companies
  • Insurance companies
  • Mutual funds
  • Commodity traders