Corporates' excessive dependence on bank finance is the major root for many hazardous situations such as 1997-98 financial crises, etc. Politicians take mostly unfavorable economic decisions that help only the smaller part of the economy and family-owned businesses. So larger part of the bank credit is dictated by political decisions rather than economic ones.

Diversified financial system could be the solution to all these problems, which would help to reduce the financial brittleness and increase in capital allocation efficiency. It would also enhance the long-term stability of corporates by limiting the maturity mismatch on corporate balance sheets. The economies will be benefited by greater market discipline in terms of more disclosure, adoption of international accounting standards and strengthened corporate governance of the corporates.

Underdeveloped bond market is also an impediment for the growth of securitization of the market. In a developed bond market, the banks can sell their risky debt very easily through securitization process. This strengthens the resilience of the financial system besides encouraging banks to finance innovative inventions aggressively. In 2001, Asia's bond markets' capitalization was at 45% of GDP while this was higher than the average of emerging markets, as compared to developed markets at 139% of GDP, which was far lower. Underdeveloped bond markets not only hurt the economies but restrict growth also. The highly capital intensive infrastructure projects require long-term source of finance which can be sourced mostly from developed bond markets rather than short-to-medium-term bank finance. Banks nurture smaller and younger firms effectively while securities market nurtures large and established firms.

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