The U.S. financial sector is at the very heart of this nation’s economy. Through these financial institutions, businesses at all levels are able to function and consumers can affordably have their wealth protected. This sector is truly an integral part of the economy; without it, the country would break down.
While the financial sector is broad, there are a few key types of businesses that we are focusing on. The first is banks, which provide a variety of services to businesses and consumers, primarily loans, transfers and deposits. Brokerage firms advise investors and connect them to the markets. And insurance companies cover customers for damages. Some of the companies that we have listed provide several, if not all, of these services.
The financial crisis that occurred a decade ago offered further proof that U.S. financial institutions are at the heart of the U.S.—if not global—economy. In the simplest of terms, banks were overzealous in their lending in the U.S. subprime mortgage market, which snowballed into a full-blown international banking crisis. This sector was in near ruin, with the investment bank Lehman Brothers collapsing and many other financial institutions requiring a government bailout.
Now there are more rules, regulations and oversight to keep these financial institutions’ lending in line to ensure that we never see a similar crisis again. In fact, the U.S. Federal Reserve recently said that most banks passed their annual Dodd-Frank Act Stress Tests, which assess their ability to survive an array of economic crises.
Yet the current administration is rolling back some of these one-size-fits-all regulations, which some bankers consider onerous. Many smaller banks have struggled with the costs and restrictions on lending that Dodd-Frank imposed. Now, the most stringent restrictions will only be applicable to the largest banks, but these are the ones with enough capital to manage. More banks will breathe easier going forward, and they could be more profitable as well.
In the most recent Federal Open Market Committee (FOMC) meeting, the Fed decided to raise short-term interest rates by 25 basis points to between 1.75% and 2.00%. However, that wasn’t all. The Fed also plans to have two more rate hikes in the remaining six months of 2018. Generally speaking, this is pretty good news for banks.
Rising interest rates allow banks, insurance companies and brokerage firms—basically any institution with massive cash holdings—to increase the yield on their cash, with the proceeds going directly to earnings.
Recent breaches of trust by some major banks have left consumers wary about where to put their money, and the concerns are very real. The rise in popularity of credit unions could provide some competition to banks.
While banks and other financial institutions still must answer to their customers, their outlook is very sunny, all things considered.
24/7 Wall St. ordered its list of major financial companies by market cap as of June 21, 2018. Also included are the companies’ most recent fiscal year revenues, net income and number of employees.