Business Ethics and Corporate Governance, Second Edition

BANKS’ ROLE IN RESTRAINING EMERGENCE OF SECURITIES MARKETS

Banks, which play a predominant role in financial intermediation in developing countries, maintain cozy relationships with established and often well-connected businesses, a natural outcome in a protected and profitable business environment in which both the borrowers and the lenders operate. In some countries, commercial firms also own and control major domestic banks, creating business conglomerates with ‘in-house’ sources of easy financing for themselves, as was the case in India before 20 of these banks were nationalized in 1960s and thereafter. Moreover, bank lending is often determined by political directives, which generally favour large incumbent firms. Some of these practices ...