In a bank-centric financial system, it has been the experience that even the task of developing non-bank channels, particularly through market-based mechanisms, falls ultimately on the banks themselves. Whether it is expecting banks to provide credit enhancement for bond markets or acting as market-makers in various market segments, the role of banks becomes critical.
This reflects the underlying structural makeup of the financial system and implies that any attempt at relaxing market regulation ultimately comes unstuck at the altar of prudential regulation. The same, to a lesser extent, applies to other regulated entities as well, such as, insurance companies, pension funds, etc.