A Financial System That Creates Economic Opportunities: Nonbank Financials, Fintech, and Innovation

Nonbank financial firms play important roles in providing financial services to U.S. consumers and businesses by providing credit to the economy across a wide range of retail and commercial asset classes. Nonbanks are well integrated into the U.S. payments system and play key roles such as facilitating back-end check processing; enabling card issuance, processing, and network activities; and providing customer-facing digital payments software. Nonbank financial firms also play important roles in capital markets and in providing nancial advice and execution services to retail investors, among a range of other services.

The financial crisis altered the environment in which banks and nonbanks compete to provide financial services. Specifically, many traditional financial companies such as banks, credit unions, and insurance companies experienced significant distress during the crisis. This distress caused the insolvency or restructuring of many existing financial companies, particularly those with volatile funding sources and concentrated balance sheets. The government responded to this distress, and the unprecedented magnitude of taxpayer support it triggered, by writing far – reaching laws that mandated the adoption of hundreds of new regulations. In some cases, these policy changes made certain product segments unprofitable  for banks, thereby driving activity outside of the banking sector and creating opportunities for emerging nonbank financial firms to address unmet market demands. ….

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