Investors must be confident that banks are establishing sufficient levels of reserves and recognizing loan impairment in a timely fashion. Compliance with sound accounting, disclosure, and reserving standards not only protects safety and soundness, but also gives the world’s investment community confidence in its analysis of risk exposure from investing in various countries and companies.
In this way, developed financial markets facilitate the financial interactions of households, corporations, financial institutions, and governments. Such markets provide a pool of savings that can be tapped into for funding investments by businesses and, also, offer a stable source of funding for governments that can be used to undertake infrastructure development.