The financial sector is a component of a nation's economy created by the ebb and flow of capital in the financial industry. Financial services include everything from personal banking to the insurance industry, and they can make up a sizable portion of a nation's economy. Evaluation of the true value of the financial sector can be complicated, as the financial industry involves a great deal of paper pushing which can sometimes be difficult to track and pin down.
Financial institutions like banks, insurance companies, brokerage houses, investment firms, and so forth are all part of the financial sector. They can trade capital in a variety of ways, including funds, derivatives, investments, debt instruments, and so forth, with much of the sector being dependent on the extension of credit. Consumers interact directly with this sector every time they apply for a credit card, deposit a paycheck in a bank, or take out a home loan, and these actions occur on a much larger scale between institutions and companies.
One of the pinnacles of the financial sector is Wall Street in the United States. As a physical place, Wall Street houses some of the biggest powerhouses in the global financial industry, including the New York Stock Exchange and numerous multi-billion dollar firms. Wall Street is also sometimes discussed as an entity, and a metaphor for the financial sector as a whole, especially in political campaign rhetoric.
The rise of this sector as a considerable source of economic clout occurred gradually, and it has allowed a few notable people and companies to achieve impressive net worths. Because financial services are such a huge part of the global economy, many nations have also attempted to regulate the financial sector to protect investors and the economy as a whole. Unregulated activities can lead to serious financial problems in periods of economic crisis, as these activities can directly contribute to crisis situations.
In the United States alone, the financial sector made up around 20% of the overall capitalization on the S&P 500, a popular measure of economic performance. In nations such as Ireland and Iceland, financial services made up an even larger portion of the national economy, which proved to be a fatal problem in the global economic slowdown of 2008. Both Iceland and Ireland experienced a radical fall from being among the top performing economies in the world to being among the lowest, thanks to the implosion of the financial industry.
