Financials

Commercial banks primarily by accepting deposits and pool them together to make larger, longer term loans to individuals and corporations. They conduct lending for a wide range of practices such as infrastructure, real estate and other project developments. Commercial banks are central to a functioning domestic and global economy due to the crucial role they play with the flow of capital. Key drivers for commercial banks involve the volume of desposits, the quality of loans being developed, the economic environment and monetary policy.

Regulation for banks was overhauled following the 2008 financial crisis and introduced strict new capital allocation requirements for commercial banks. Banks cash reserves were increased and placed certain risk adjusted weighting on specific assets in order to incentivise low risk actions.

The insurance industry was developed to allow individuals and corporations to hedge against unfavourable outcomes. Insurance is essentially a contract/policy in which an insurer compensates the insuree against the losses or damages that were specified in the contingencies. Traditional policy lines include property, casualty, and reinsurance. Nontraditional products include but are not limited to, annuities, alternative risk transfers, and financial guarantees. Insurance companies typically specialise in a sector such as property or casualty but larger corporations tend to branch across multiple areas to diversify. Key drivers for industry growth include insurance premiums, underwriting revenue and investment income. The insurance claim payments are considered the greatest cost and source of uncertainty for profits.

Insurance companies rely on their efforts to successfully provide products and services that enable the ability to transfer, pool and share risk consistently. Insurance companies are as susceptible as other financial institutions to credit, financial and global markets. Insurance companies are central to the financial system and allow for corporations to be interdependent with one another without the risk of contamination from bad debts or decisions.

The investment banking and brokerage industry facilitate a wide range of activities in the financial system. Products and services provided include but are not limited to, assisting with the capital raising and allocation process, providing market making and advisory services for corporations, financial institutions, governments and high net-worth individuals. Other key functions of the industry involve securities underwriting, brokerage activities regarding commodities and securities, trading and principal investment activities. Investment banks also originate, securitise or even syndicate loans for infrastructure and other developments.

The Investment Banks and Brokerage industry is highly intertwined in global markets and therefore any significant changes will impact their ability to generate revenues for better or worse. The industry is also highly subject to various regulatory requirements for the functions that they perform. These include requirements such as minimum capital requirements, stress tests and transparency.

The Mortgage Finance industry is central to enabling consumers to have the ability to own real estate and contribute to the stability of an economy. Companies capital to the consumer or commercial customer to buy the real estate, where the property is the collateral for the loan. The primary function of the industry is to provide residential and commercial mortgages but other services include but are not limited to, valuation, mortgage servicing, title insurance as well as closing and settlement services.

Mortgage finance is typically a sector within a larger banking organisation but there has been growth of pure mortgage finance businesses. Due to the role that real estate played in forging the Great Financial Crisis the sector has been increasingly regulated to ensure that more strict lending standard are conducted and that consumers aren’t over extending their credit abilities.

The Securities and Commodity Exchanges are crucial towards creating liquid and efficient markets. They can operate as physical trading floors but are increasingly being adopted on electronic platforms to trade commodities, financial securities and other financial products and instruments. Firms in the industry primarily generate their revenues from charging fees on transactions and trades but there has been a rapid rise in platforms that specialise in low cost fees but sell user data to create revenue.

Similar to other financial institutions the security and commodity exchanges are highly subject to regulatory requirements. Due to the influx in retail trading, greater attention is being brought to the nature of what a ‘sophisticated’ investor is and the impacts it may have on global markets.

The Consumer Finance industry is focused on providing loans to consumers to allow them to pay for a good or service that they cannot pay for up from with cash or credit. The most dominant aspect of this industry is the revolving credit loans that are delivered through credit card products, other loan product include but are not limited to, student loan, vehicle loans and micro lending. Other valuable sectors of the consumer finance industry involve but are not limited to, providing consumer to consumer money transfers, bill payment services and prepaid debit cards.

The consumer finance industry’s performance is aligned with the overall health of an economy. Key determinants of the industry include but are not limited to, consumer spending, unemployment rates, GDP per capita, wage growth and population growth. Consumer finance has become an increasingly more competitive industry with the rise in niche companies meeting more specific areas of consumer finance that larger banks and corporations have been neglecting.