3 wide database combining and updating several financial data sets. The database is made publicly available at www.worldbank.org/financialdevelopment and http://data.worldbank.org/data- <u>catalog/global-financial-development</u> _._ The paper, however, goes beyond just compiling data. It aims to answer some substantive questions using the data. The questions addressed in this paper are: How can one empirically characterize different characteristics of financial systems? How can one compare financial systems across countries and regions and through time? How have financial systems been affected by the global financial crisis, and what are the key trends in the aftermath of the crisis?

To measure and benchmark financial systems, the paper develops several measures of four characteristics of financial institutions and markets: (a) the size of financial institutions and markets (financial depth), (b) the degree to which individuals can and do use financial institutions and markets (access), (c) the efficiency of financial institutions and markets in providing financial services (efficiency), and (d) the stability of financial institutions and markets (stability). These four characteristics are measured both for financial institutions and financial markets (equity and bond markets), thus leading to a 4x2 matrix of financial system characteristics. The paper then uses these measures to characterize and compare financial systems across countries and over time and to assess the relationship between these measures of the financial system and key financial sector policies.

In focusing on these four characteristics of financial institutions and markets, the paper seeks to provide empirical shape and substance to the complex, multifaceted and sometimes amorphous concept of the ―functioning of financial systems.‖ The paper recognizes that financial depth, access, efficiency, and stability might not fully capture all features of financial systems and it makes no attempt to construct a single, composite index of financial systems. Rather, the paper uses these four characteristics as a basis for describing, comparing, and analyzing financial systems around the world and their evolution over the last few decades.

The analyses presented in this paper, together with the underlying datasets, highlight the multidimensional nature of financial systems. Deep financial systems do not necessarily provide high degrees of financial access; highly efficient financial systems are not necessarily more stable than the less efficient ones, and so on. Each of these characteristics has an association with aspects of the broader socio-economic development, and each is in turn strongly associated with financial sector policies and other parts of the enabling environment for finance. The paper illustrates that financial systems come in different shapes and sizes, and they differ widely in terms of the 4x2 characteristics. It is therefore important to measure and evaluate each characteristic of financial systems.

The paper also documents that the global financial crisis meant not only increased financial instability: the crisis also translated into difficulties along the other dimensions, such as more people and firms finding it increasingly difficult to access financial services. Finance is not just about stability. The degree to which financial systems channel society‘s savings to those with the most promising investment opportunities is fundamentally important for economic growth, poverty alleviation, and the degree to which individuals have the opportunity to pursue their economic aspirations.