Beyond central concerns relating to banking and nonbank finance, as financial systems develop, additional issues arise. These issues, as a general matter, need to be dealt with according to the general principles outlined in previous chapters and focusing on two sets of concerns: (1) financial stability and (2) financial development. Under this framework, the approach to general cross-sectoral considerations should address possible risks to financial stability as the first-order concern while at the same time supporting financial development and innovation.

Four primary considerations arise: (1) financial liberalization, (2) competition, (3) financial conglomerates and (4) financial regulatory structure.

Liberalization and competition bring important economic benefits in the context of supporting financial development, and economic growth. Research and experience suggest that a liberalized and competitive financial sector supports increased economic growth. At the same time, financial sector liberalization brings with it certain risks that need to be addressed appropriately. Most importantly, financial liberalization without appropriate sequencing and development of a legal and regulatory framework to reduce risks actually can increase the risk of financial crisis. As such, the concerns addressed in previous chapters regarding foundations of finance, banking and nonbank finance are all of special significance as financial sectors liberalize and develop.

In looking at liberalization, international best practice suggests that in building a competitive financial sector, countries can use international and regional arrangements to reinforce progress and encourage competition.