Rather, what matters for growth is the overall level and quality of financial services produced by the entire financial system. In particular, legal and regulatory systems play a key role in determining growth-enhancing financial services. My own view, to summarize, is that financial structure does not seem to matter much for growth. We should view financial intermediaries and markets as complementary components in a diversified and comprehensive system of financial intermediation. •  Competition for allocating financial flows and risks enhances economic efficiency. Financial competition is threefold: (i) within the intermediary-based system (banks, mutual funds, insurance companies…), (ii) between intermediaries and markets in a given country and (iii) between national financial systems. •  Financial intermediaries are also key market participants. They contribute to the effective functioning of markets. Banks, in particular, are the ultimate providers of liquidity; a function which is essential in ordinary times and can become critical in periods of stress. •  This is why a diversified financial system can help and absorb shocks and, in most extreme circumstances, mitigate the consequences of financial crisis. Financial crises have occurred in countries with differing financial structures, suggesting that the specific organisation of the financial system does not matter. Yet, I will quote Alan Greenspan 5 who argues that “multiple alternatives to transform an economy’s savings into capital investment act as backup facilities should the primary form of intermediation fail. In 1998 in the United States, banking replaced the capital markets.

The emergence of substantial markets in forward, futures, options swaps and other derivative instruments has significantly altered the conduct of borrowing, investment and risk management activities. The significant economic benefits of financial derivatives include: (i) permitting the unbundling and trading in risks, (ii) the ability to hedge price risks and to synthesise investments with greater efficiency and lower costs, (iii) and an increasing liquidity of and trading in financial assets. I would expect this process of constant innovation to continue in the decade ahead. First, because innovation is a natural feature of modern financial markets. The expansion of the credit derivatives in the last five years illustrates how fast new instruments cans develop and expand. And, second, because markets are still incomplete, in the sense that some risks cannot be efficiently hedged or transferred in the current environment. B  Incomplete markets and intergenerational risks  One interesting example is demographic risk, and more generally, the efficient transfer of risk between different generations. Currently, markets may not be well equipped to deal with intergenerational risk that simultaneously affects different generations living at the same time. Many developed countries are going through a demographic transition, sometimes called the old age crisis. According to the World Bank’s 1994 report for instance, by 2030 there will be 1.4 billion people in the world aged over sixty, versus 500 million in 1990. So, we are experiencing a transition to an economy with many more aged dependents relative to the active workforce.