Financial Services Industries - Essay Example

This destabilization asks questions about the various organizational practices and balance sheet structures that these two types of financial institutions utilize. Furthermore, the regulatory agencies involved in the monitoring of securities firms play a vital role in protecting consumers and investors, and the solvency of the bank system is a vital component of social stability not only in the U.S. economy but globally speaking. This paper will briefly examine some of the differences in structure and operation of depository institutions as well as examine the regulatory processes involved in supervising the securities firms.

As an illustration of the crumbling barrier between banking and commerce consider that during the 1970s there were predictions that there was a decline in banking as balance sheets for commercial banks had fallen to their lowest levels in years (Federal Reserve Bank, 1998). In response a number of deregulation initiatives were instituted to spur growth for depository institutions. To manage the acknowledged increased risk that deregulation would entail the FDIC systematically raised the minimum level of the capital-to-asset ratio.

However, because of deregulation and the FDIC response this encouraged depository institutions to move business off their balance sheets, for example, by packaging and selling various product lines in the form of securities. This “securitization” of assets, such as mortgages, auto loans, and credit-card loans- shifts loans to permanent investors, leaving the depository institutions to service the loans for a fee. "Origination, distribution, and servicing capabilities have therefore become increasingly significant elements of the banking business, while building up the balance sheet, once perceived as a measure of an institutions eminence, has diminished in importance" (Federal Reserve Bank, 1998, p. 61). The operational practices and balance sheet structure are in fact markedly different