The legal infrastructure has to be developed for financial supervision, bankruptcy and foreclosure. Bank secrecy laws have to be repealed to enhance transparency. An explicit deposit insurance scheme needs to be put in place or refined to maintain confidence in the financial system and prevent bank runs. Banking sector reform is a long-term process. Furthermore, non-performing loans are still high in some countries.
Unfinished agenda is long.
Domestic sources of long-term funds are needed. However, long-term bond markets cannot be developed without improved corporate governance or an expanded investor base. Until equity markets are strengthened, the capital market cannot function well to complement the banking sector. Governments have been ineffective in addressing weaknesses of the capital markets. They tried to do too much, dictating resource allocation of financial institutions and bailing out inefficient and virtually bankrupt banks, financial institutions and state-owned enterprises.