Fostering capital markets in a bank-based financial system : a review of major conceptual issues

The paper presents a review of major conceptual issues as a framework in which to conceptualize the rationales and strategies for fostering capital markets in a largely bank-based financial system. As elsewhere in the developing world, the relative underdevelopment of capital markets in developing Asia can be attributed to inadequate market and legal infrastructure, which, in the presence of informational problems, raises the cost of external finance. In such an environment, bank finance is often a less costly means of external finance because it can minimize informational problems by establishing a long-term monitoring relationship with borrowers. (Asian Dev Rev/DÜI)