chapter  1
6 Pages


The financial system comprises banking institutions, financial markets, other financial intermediaries such as pension funds and insurance companies, and a large regulatory body: a central bank, which oversees and supervises the operations of these intermediaries. Every economy requires a sophisticated and efficient financial system to prosper. A more efficient financial system provides better financial services, and this enables an economy to increase its real GDP growth rate. Conversely, a weakened financial system spills over unfavourably into the economy. An inadequately supervised financial system may be crisis-prone, with potentially devastating effects. The important role of financial intermediaries and financial markets therefore merits more attention from researchers and policy makers.