A Framework for Financial Market Development

59 Pages Posted: 4 Aug 2009

See all articles by Ralph Chami

Ralph Chami

International Monetary Fund (IMF)

Connel Fullenkamp

Duke University - Department of Economics

Sunil Sharma

George Washington University - Elliott School of International Affairs; International Monetary Fund (IMF)

Date Written: July 2009

Abstract

The paper proposes a framework for examining the process of financial market development. The framework, consistent with the functional view of financial system design, is anchored in studying the incentives facing the key players in financial markets-borrowers, lenders, liquidity providers, and regulators-whose actions determine whether and how markets develop. While different financial instruments embody different concessions by borrowers and lenders, the framework emphasizes the two main compromises: the tradeoffs between maturity and collateral, and between seniority and control. The framework is used to analyze the sequencing of financial market development.

Keywords: Banking sector, Banks, Bond markets, Capital markets, Demand for money, Financial instruments, Financial risk, Financial sector, Financial systems, Loans, Risk management, Securities markets, Stock markets

Suggested Citation

Chami, Ralph and Fullenkamp, Connel and Sharma, Sunil, A Framework for Financial Market Development (July 2009). IMF Working Paper No. 09/156, Available at SSRN: https://ssrn.com/abstract=1442258

Ralph Chami (Contact Author)

International Monetary Fund (IMF) ( email )

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Connel Fullenkamp

Duke University - Department of Economics ( email )

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(919) 660-1800 (Phone)

Sunil Sharma

George Washington University - Elliott School of International Affairs ( email )

Institute for International Economic Policy
1957 E Street NW
Washington, DC 20052
United States

International Monetary Fund (IMF) ( email )

Research Department
700 19th Street NW
Washington, DC 20431
United States

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