The Principles Behind Financial Regulation In Emerging Markets

When policymakers understand the importance of financial sector regulation, and are firmly resolved to take the necessary steps. They can succeed in strengthening their country’s financial sector and economy. Since a major challenge for emerging markets, in this decade, is financial sector restructuring and development. 

Here are a few reasons for the principles behind financial regulation in emerging markets 

It can create growth 

The world’s best financial institutions are better able to identify productive investment opportunities and then more quickly move domestic savings into them. Therefore the better they perform their capital intermediation function, the faster an economy can grow. 

It can allow for operation in international markets. 

One of the best ways to improve financial regulation in emerging markets is to expose domestic firms to the best practices of world-class financial institutions. This way domestic firms can learn from the best, and begin to compete with the best. 

Challenged by foreign competition, emerging markets will be forced to restructure, cut overhead costs and improve efficiency. 

To compete, emerging markets will expand into new national markets and merged with other banks to take advantage of economies of scale. They also began operating in international markets. Competitive financial services markets in developing markets helped increase growth rates. 

It creates stability 

A stronger financial sector enhances economic stability. That is, that a financial sector reduces risks for savers and investors, and acts as a hedge against global economic cycles. 

A healthy financial sector is able to inject new credit into the economy as the central bank expands the money supply. Foreign-backed financial institutions in developing markets often have stronger balance sheets, and a greater ability to lend, especially during slowdowns.  

Foreign banks have the ability to continue extending credit to local businesses, which is often essential for stabilising the economy.