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Dwindling Numbers in the Financial Industry
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Dwindling Numbers in the Financial Industry

Hester Peirce
Brookings Institution, 2017
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Editorial Rating

7

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Recommendation

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.

Take-Aways

  • Broker-dealers (BDs) and futures commission merchants (FCMs) play a major role in shaping efficient and functional securities markets, yet their numbers are declining.
  • Factors such as cost savings, the economic downturn and technology might explain the reduction in the number of BDs. The FCM sector has suffered from a few high-profile instances of fraud or misuse of customer funds.
  • Some question whether greater regulation is a major contributor to the decreases in the BD and FCM ranks.

About the Author

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

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