Abstract and Keywords
This Chapter examines evidence on the structure of ownership, control, and financing of corporate sectors in developed countries to draw lessons for economic development and the development of financial markets. It records the critical role that equity markets played in the ownership and financing of corporations throughout the twentieth century and how this occurred in the absence of formal systems of regulation, relying on a variety of informal institutional arrangements. The Chapter contrasts these informal arrangements in equity markets with the formal regulation that is required in banking. It describes the shift from micro-regulation of individual banks to the macro-prudential regulation of banking systems as a whole. It argues that these should be part of a clearly defined partnership between the state and banks by which the state protects core components of a banking system in return for banks delivering key economic and public functions. Finally, the Chapter questions whether the traditional elements of financial markets are correct in light of, first, the explosion of mobile money and, second, the emergence of China and Korea as major economic powers with equity markets that are very different from standard models.
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