In an efficient financial system, markets are competitive, information is accessible and widely disseminated, and the conflicts between borrowers and lenders that arise from agency problems are effectively dealt with through market contracts. 1] In this way, financial efficiency contributes to minimising the wedge between borrowing and lending rates, as well as the dispersion of risk-adjusted borrowing costs across individuals.
2 From this definition, it is obvious that reducing regulatory entry costs in financial markets and, more generally, enhancing competition, transparency, innovation and financial market integration will enhance financial efficiency. While financial stability and financial efficiency are different concepts, they are interrelated.