The Evolution of Financial Services in the United States

Abstract

This article surveys the literature on the historical growth and transformation of the U.S. financial sector. The sector expanded rapidly between 1980 until 2006, when its contribution to GDP rose from 4.8% to 7.6%. After the Global Financial Crisis, the size of the sector stabilized at approximately 7% of GDP. After reviewing this literature, we extend this research to cover recent developments, including the continued growth of high fee alternative asset management and a shift away from banks to lending by nonbank financial intermediaries. We interpret both the growth of the sector and the recent evolution as reflecting a continued transition to a more market-based financial system, with risk migrating away from banks and into markets.