Overview of the Flow of Funds in the US Capital Market: Capital Flow Analysis: The Big Picture

An overview of the U.S. capital market based on Federal Reserve national flow of funds accounts.

Overview of the flow of funds in the US capital market: The Big Picture Overview of Market Players About Individual Investors About Fund Managers About Bankers, Brokers About Corporate Managers About Foreign Investors About Government Officials About Insurance Executives About the Instruments About Municipal Bonds About Treasury, Open Market Securities About Corporate Bonds About Fund Shares About Agencies, Mortgages About Equities

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Capital Flow Analysis: The Big Picture Overview of the Flow of Funds in the US Capital Market

The U.S. capital market, the largest in the world, is daunting in size and complexity.

However, using Capital Flow Analysis and Federal Reserve National Flow of Funds Accounts, we can describe the broad outlines of the market.

Seven Sectors; Six Instrument Categories

In 2004, the American capital market was made up of seven major sectors (classes of players) that traded six main categories of securitized instruments, as follows:


The U.S. Capital Market in Q4 2004 (by value of financial assets)
Sectors (Players)
Securitized Instruments
Corporate Equities
Fund Managers
Agency Securities & Mortgages
Bankers and Brokers
Fund Shares
Corporate Managers
Corporate Bonds
Foreign Investors
Treasuries and Open Market
Government Officials
Municipal Securities
Insurance Executives
Total US$ trillions
Total US$ trillions


Total financial assets held by the principal categories of players were valued at $101.1 trillion on December 2004. Securitized instruments totaled $56.3 trillion, as shown above.

[Note: Because of difficulties in gathering data and lack of reporting from the underground economy, national flow of funds accounts should be interpreted as rough estimates.]

The sector and instrument totals, above, are different because only a portion of financial assets are securitized and traded on the market.

In December 2004, at least 40% of all financial assets were not securitized, but were held in forms such as bank deposits, savings deposits, and trade receivables.

There is also double counting in flow of funds accounts. For example, households own mutual funds and mutual funds own stocks and bonds. The same stocks and bonds are counted twice as assets of households and of mutual funds.

Further Breakdown of Sectors and Instruments

The broad sectors shown in the table are broken down further in the national flow of funds accounts.

For example, the category 'Fund Managers' is made up of seven sectors, as follows:

Fund Managers
Private Pension Funds
Local Gov't Retirement Funds
Federal Retirement Funds
Money Market Funds
Mutual Funds
ETF and Closed-End Funds


In general, 'Fund Managers' hold and invest other peoples' money for a fee.

A breakdown and explanation for each of these seven sectors and six instrument categories can be found by clicking on the 'players' and 'instruments' tabs at the top of each page.

Primary Players

It is useful to think of the capital market as being composed of primary players and intermediaries.

Intermediaries are institutions that make the capital market work by providing financial services and by creating securities out of debt and equity offered by the primary players.

The four groups of primary players are:

Primary Players
Corporate Managers
Foreign Investors
Government Officials

Households (individuals) get money to invest from wages, salaries, investment income, and accumulated wealth. Households borrow money for home ownership and consumer spending. Some household debt is converted into mortgages and asset-backed securities.

Foreigners accumulate dollars that are invested in U.S. securities, primarily by selling more goods into the American market than they purchase, but also from wealth accumulated abroad. Foreigners also issue stocks and bonds that finance business overseas.

Government officials raise money through taxes and through the sale of municipal securities and treasury bonds.

Corporate managers raise money for business purposes by selling stocks and bonds through financial intermediaries.

The motivation of these primary players has changed over the long history of the U.S. capital market.

All of these sectors, to a greater or lesser degree, are both investors in and issuers of securities. They also borrow and lend on an unsecuritized basis.

The motivation of each category of players is different.


Before proceeding, check your progress:


The market sector with the most financial assets is controlled by:
Choice 1 Bankers and brokers
Choice 3 Insurance executives
Choice 4 Households
Choice 2 Corporate managers.
In December 2004, the category of securities with the greatest market value was:
Choice 2 Treasuries and open market.
Choice 1 Corporate equities.
Choice 3 Fund shares.
Choice 4 Municipal securities.
Primary market players include:
Choice 2 Households and corporate executives.
Choice 3 Bankers and brokers.
Choice 1 Government officials and fund managers.
Choice 4 Foreign investors and insurance executives.

learning Module Capital Flow Analysis: Overview of the US Capital Market : continued >

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