CRS Series: Introduction to Financial Services—118th Congress

CRS Series: Introduction to Financial Services—118th Congress

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INSIGHTi

CRS Series: Introduction to
Financial Services—118th Congress
Updated March 8, 2023
The Congressional Research Service (CRS) has created a series providing an introduction to various
financial services issues in the 118th Congress—click on any of the In Focus titles below to access a two-
pager on the topic. In addition, the products are published jointly here.
The Regulatory Framework
Financial activity can generally be divided into three broad categories—banking, securities markets, and
insurance (Figure 1). The financial regulatory structure is more fragmented, involving multiple,
overlapping regulators at the federal and state levels. Further, because institutions, markets, and products
can be subject to regulation, an activity may fall under the purview of multiple regulators.
Figure 1. Assets Held by Selected Financial Institutions, 2022: Q2
($ Trillions)

Source: Federal Reserve.
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Notes: Hedge funds is as of 2022: Q1.
See CRS In Focus IF11065, Introduction to Financial Services: The Regulatory Framework.
Banking
Traditionally, banking involves accepting deposits from customers and making loans to businesses and
households. Holding $25.5 trillion in assets, banks and credit unions play a central role in the financial
system by connecting borrowers to savers and allocating capital across the economy. Yet banking is an
inherently risky activity involving extending credit and taking on liabilities, and banking panics and
failures can create devastating losses. Bank and credit union regulation is divided among multiple federal
regulators, including the Federal Reserve, the nation’s central bank.
See CRS In Focus IF10035, Introduction to Financial Services: Banking; and CRS In Focus IF10054,
Introduction to Financial Services: The Federal Reserve.
Insurance
Insurance involves collecting premiums from and making payouts to policyholders triggered by a
predetermined event. Holding $11.8 trillion in assets, the insurance industry is often separated into two
parts: life and health insurance, which also includes annuity products, and property and casualty
insurance, which includes most other lines of insurance, such as homeowner’s insurance, automobile
insurance, and various commercial lines of insurance purchased by businesses. Insurance is primarily
regulated at the state level.
See CRS In Focus IF10043, Introduction to Financial Services: Insurance.
Securities
Securities, which are often traded in financial markets, take the form of debt (a borrower and creditor
relationship), such as corporate bonds ($8.7 trillion outstanding) and equity (an ownership relationship,
$46.5 trillion outstanding). Selected financial firms that operate in capital markets hold $32.9 trillion in
assets (see Figure 1). Federal securities laws overseen by the Securities and Exchange Commission
(SEC) are broadly aimed at protecting investors; maintaining fair, orderly, and efficient markets; and
facilitating capital formation.
See CRS In Focus IF11714, Introduction to Financial Services: The Securities and Exchange Commission
(SEC); and CRS In Focus IF11062, Introduction to Financial Services: Capital Markets.
ESG Issues
Environmental, social, and governance (ESG) issues generate policy debate over what is material in these
areas, which ESG factors a firm should consider and disclose to investors, and the appropriate role of the
SEC.
See CRS In Focus IF11716, Introduction to Financial Services: Environmental, Social, and Governance
(ESG) Issues.
Derivatives
A derivative is a type of security that derives its value from some underlying asset. For example, the
derivative may be tied to a physical commodity (such as cattle, wheat, or oil), a stock index, or an interest

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rate. Derivatives come in several different forms, including futures, options, and swaps. Derivatives are
primarily regulated by the Commodity Futures Trading Commission (CFTC).
For more information, see CRS In Focus IF10117, Introduction to Financial Services: Derivatives.
Consumer Protection
Trillions of dollars of credit is extended to consumers from banks and nonbank financial institutions
(Figure 2). These financial decisions can be complex and can affect financial well-being both now and in
the future. The Consumer Financial Protection Bureau (CFPB) was established by P.L. 111-203 (Dodd-
Frank Act) to implement and enforce federal consumer financial protection law while ensuring consumers
can access credit.
Recent data breaches at large financial institutions have also increased concerns about the privacy and
security of consumer financial information. Financial institutions seek to prevent electronic theft of
money and other assets, as cybersecurity threats could interrupt or shut down their businesses.
Figure 2. Selected Household Credit, 2022: Q2
($ Trillions)

Source: Federal Reserve.
See CRS In Focus IF11682, Introduction to Financial Services: Consumer Finance; CRS In Focus
IF10031, Introduction to Financial Services: The Consumer Financial Protection Bureau (CFPB); and
CRS In Focus IF11717, Introduction to Financial Services: Financial Cybersecurity.
Housing Finance
A mortgage is a loan that uses real estate as collateral. The U.S. residential mortgage market—
approximately $13 trillion in debt outstanding (of which $12.2 trillion is owed by households)—
constitutes the largest share of household credit. The mortgage market has two major components—the
primary market in which mortgages are originated and the secondary market in which existing mortgages

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are bought and sold. Fannie Mae and Freddie Mac, government-sponsored enterprises (GSEs), play an
important role in the mortgage market and are regulated by the Federal Housing Finance Agency (Figure
3).
Figure 3. Residential Mortgage Holders/Guarantors, 2022: Q2
($ Trillions)

Source: CRS calculations based on Federal Reserve.
Notes: Includes mortgage pools backed by entities.
See CRS In Focus IF11715, Introduction to Financial Services: The Housing Finance System.
Systemic Risk
Systemic risk is a risk posed by financial firms, market structure, or activities that could lead to a
breakdown in financial stability, such as the 2007 to 2009 financial crisis. The Financial Stability
Oversight Council (FSOC) was created by the Dodd-Frank Act to identify and respond to risks to
financial stability.
See CRS In Focus IF10700, Introduction to Financial Services: Systemic Risk.
Accounting and Auditing
Accounting is considered the language of finance. A common set of principles and rules help establish
accounting standards. Accounting and auditing standards in the United States are promulgated and
regulated by various federal, state, and self-regulatory organizations (SROs). Congress has allowed
financial accounting and auditing practitioners to remain largely self-regulated, while retaining oversight
responsibility.
See CRS In Focus IF10701, Introduction to Financial Services: Accounting and Auditing Regulatory
Structure, U.S. and International.

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Author Information

Marc Labonte
Raj Gnanarajah
Specialist in Macroeconomic Policy
Analyst in Financial Economics

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff
to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of
Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of
information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role.
CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United
States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However,
as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the
permission of the copyright holder if you wish to copy or otherwise use copyrighted material.

IN11016 · VERSION 7 · UPDATED