Responses to some of these lessons are already being put into practice, and there is considerable supporting research, both at the Bank and in academia. At the regulatory level, the G-20 countries recognized the need to make the world’s financial system safer.
Financing through financial intermediaries is an effective solution to adverse selection and moral hazard problems that exist between lenders and borrowers. Banks in particular have developed expertise to distinguish between good and bad borrowers. Economies that have both well-developed banking sectors and capital markets thus have an advantage.