While we recognize that financial markets are characterized by market failures, it is often very difficult, in practice, for governments to correct these failures and efforts to do so are often counterproductive. An important component of the financial system is the capital market, which entails funds being mobilized by firms, institutions or the government directly from savers through the issuance of equities or bonds.
Although market based financial systems are sometimes contrasted with bank based systems, this is in some respects a false dichotomy. The capital market is not a substitute for the banking sector. Instead capital markets and the banking sector are complements; each catering for different needs of the economy in terms of financial services.