Following the collapse of Enron, the financial services industry was subjected to intense government scrutiny and a wave of fraud allegations against top executives. JP Morgan Chase and Merrill Lynch were also under fire, and Lehman Brothers declared bankruptcy. On the other hand, new technologies are making the financial services industry more customer-centric and competitive than ever before. For this industry to thrive in the future, regulatory safeguards must be strengthened.
Since the 1990s, the financial services industry has experienced numerous crises, including the dot-com bubble, Black Monday, and the subprime mortgage crisis. These crises prompted stringent regulations, such as the Gramm-Leach-Bliley Act. However, the financial services industry still faces numerous challenges. To overcome these obstacles, the US requires a comprehensive economic reform strategy.
The United States has some of the world's largest and most liquid financial markets. In 2014, the finance and insurance industries accounted for 7.2 percent of the US GDP. This represents a massive increase in job creation and economic activity. According to the US Department of Labor, the securities and investment industry employed 888,600 people. Despite these obstacles, the industry is expanding at an incredible rate.
A more open financial services industry may also attract more foreign firms. Japan has a universal banking system, and banks dominate its equity market, but it has historically lagged behind the United States in terms of competitiveness. As a result, the Japanese government is already promoting competition in financial services. Japan may try to open up new niches for US players in the future. One option is for a foreign bank to buy a Japanese regional bank with a robust retail network. However, such acquisition is currently prohibitively expensive.
Merging with a bank is another way to start a new business. The bank would retain its original brand while incorporating the acquired firm into its holding company. However, this does not guarantee that the new company will be successful. Large insurance companies, for example, have begun to acquire brokerage firms. However, this strategy has not yielded the desired results, primarily in profits and market penetration.
As a result of these trends, foreign banks now account for a growing share of the US market. In June 1988, there were 265 foreign banking institutions in the United States, with $617 billion in assets. This accounted for approximately 20% of commercial banking assets and 25% of business loan assets. The largest four banks in California are Japanese. This means that Japanese banks control nearly a quarter of the retail banking market in the country.
A new set of factors is influencing the industry. To begin, the regulatory environment is changing. Firms must adapt quickly to new challenges in this new environment. The expanding regulatory environment, for example, has added cybersecurity and a focus on social and environmental issues. Second, employees are looking for a company's mission. This will be an essential competitive dynamic in the future.
The size of the global market is another factor influencing the financial services industry in the United States. Some companies in the industry have their headquarters in the United States and operate globally. They own property in both developing and developed countries. The demand for their products determines their expansion. These businesses are more competitive in the global market.
The financial services industry, like other industries, is experiencing globalization. The number of commercial banks operating in foreign markets has increased due to international trade. Large investment banks compete on a global scale as well. They provide merger and acquisition advice and work stocks globally. Reuters also provides a global trading system that connects derivative markets. As a result, firms benefit from a more competitive and creative environment. It also produces a broader range of financial products.