Since the 2008 subprime mortgage crisis, the Financial Services sector has seen a decline in revenue as government regulation has increased. Regulatory changes such as the Dodd-Frank Wall Street Reform and Consumer Protection Act limit the financial activities that investment banks can participate in. With increased regulation, consolidation of the sector followed as many unprofitable banks and financial institutions have exited the market or were acquired. Activity in the capital markets remained strong as investment management and proprietary trading activity have shown increased levels of revenue. Lending practices at commercial banking institutions also have increased revenue levels thanks to improved macroeconomic conditions.
Value of Closed M&A Domestic Transactions ($mm)
Industry Performance vs National GDP
The sector is expected to encounter several challenges as regulations continue to be enforced. As a result, the sector’s profit growth is estimated to decline due to higher compliance costs and a reduction in activities within investment banks. This trend is largely due to structural changes in the industry, rather than changes in financial market activity. Reduced leverage and greater regulation will contribute to the sector's lower profit and risk profile. However, the sector is expected to increase expenditures on sophisticated IT infrastructure. This will become especially important as operators consolidate data for compliance purposes.