Summary of Dwindling Numbers in the Financial Industry

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Dwindling Numbers in the Financial Industry summary

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The well-publicized contraction in the number of banks in the United States aligns with the quieter yet troubling retreat in the quantity of broker-dealers (BDs) and futures commission merchants (FCMs). Increased regulation appears to contribute to the nosedive, according to this thought-provoking article by researcher Hester Peirce. The regulatory burden could help explain why the ranks of small BDs have taken a disproportionate hit and why the FCM firms that remain are quite sizable. The negative consequences of fewer but larger BDs and FCMs include less competition and greater risk to the financial system. getAbstract recommends this notable report to regulators, policy experts and financial professionals.

In this summary, you will learn

  • Why the numbers of broker-dealers and futures commission merchants have declined between 2007 and 2017,
  • Why financial regulations might be a major contributor to these drop-offs, and
  • What problems the decrease presents for financial markets and customers.
 

About the Author

Hester Peirce is a senior research fellow at the Mercatus Center at George Mason University.

 

Summary

Broker-dealers (BDs) and futures commission merchants (FCMs) play a significant part in shaping efficient and functional securities markets. BDs act as major hubs for securities trading either for themselves or other BDs, which run the gamut from boutique firms to arms of major financial institutions. FCMs have a similarly important role in commodities by allowing farmers and agricultural companies to hedge risk and by providing a clearinghouse for the buying and selling of futures contracts, swaps and related financial tools.

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