As discussed in the previous chapter, the traditional focus of banking regulation and supervision has been systemic risk. As a result, banking until quite recently has received much greater attention than nonbank finance from regulators and researchers. At the same time, in most developing, emerging and transition economies, banking accounts for the majority of finance and is therefore a central focus in terms of financial development to support economic growth. In many ways, this predominance of banking often is due to the fact that banking (and related activities) develops more easily in weaker institutional environments than many forms of nonbank finance.

Most forms of nonbank finance – especially securities, insurance and pensions and with the notable exception of microfinance – tend to require a stronger institutional environment in order to develop and function well. At the same time, in many sophisticated financial systems (including the international financial system), nonbank finance now accounts for the majority of finance, with the share of banking having decreased steadily over the past fifty years and the share of securities, insurance and pensions increasing steadily over the same period. As a result, from the developmental perspective, there has been increased attention to developing securities, insurance and pensions not only in developing, emerging and transition economies but also in developed economies (the best example being continental Europe).