The Economics and Politics of Financial Modernization

The structure and regulation of a country’s financialmarkets and institutions are the focus of considerablepolicy attention for a number of economic and politicalreasons. Banks and other financial institutions encourage andcollect the savings that finance a country’s economic growth.By allocating the savings to enterprises and monitoring the useof the funds, the institutions and the markets play an integralrole in the corporate governance system that ultimately affectsthe productivity of resources throughout the economy. Banksand other financial institutions also play an integral role intransmitting the government’s monetary and credit policies tothe rest of the economy. Parts of the financial sector areeffectively regulated as a means to provide subsidized credit orservices to targeted groups (including the government itself)and to protect particular groups from such activities ascompetition, hostile takeovers, and expropriation.[...]