But what we do know is that both systems have their merits, which vary depending on how well a country’s economy is developed and how it is faring at a given point in time. The better developed an economy, the less the banking sector spurs growth and the more capital market financing comes into play.
Also, market-based financial systems help to take the sting out of recessions that follow in the wake of financial crises. Bank-based financial systems, meanwhile, are more adept at evening out “normal” cyclical fluctuations. However, the latest financial crisis has opened up another vista.