financial markets now let ’ s look at how opening financial markets to foreigners promotes financial development. globalizing the domestic financial system by opening financial markets to foreigners encourages financial development and growth in wealth in two ways. first, opening financial markets to foreign capital directly increases access to capital and lowers its cost for those with productive investments to make. 7 we know that labor is cheap in poor countries, and so we might think that capital would be especially productive there. just think of how hugely profitable a factory might be in a country where wages are one - tenth of those in the united states. although some of that differential would likely reflect the higher productivity of american workers, capital should, nevertheless, have extremely high returns in such countries, and, in principle, we should expect substantial flows of capital from rich countries ( where the returns on capital should be relatively low ) to poor countries ( where they should be far higher ). such capital flows could lead to substantial benefits for poor countries in the form of larger capital stocks, higher productivity, and more rapidly growing incomes. in fact, as we well know, at present capital flows are moving, on net, from poor countries to rich ones, that is, in a direction opposite to the one we would expect. many reasons have been proposed for this apparent paradox, but one of them certainly is the weakness of financial systems in poor countries, as described earlier. this point leads us to a second benefit of financial globalization : opening markets to foreign financial institutions promotes reforms to the financial system that improve its functioning. allowing foreign financial institutions to operate in an emerging - market country brings in expertise and a survey of the literature that links a lack of sufficient prudential regulation and supporting institutions to excessive risktaking and the possibility of a subsequent banking crisis is in demirguc - kunt and detragiache ( 2005 ). dell ’ ariccia and marquez ( 2006 ) also argue that under certain circumstances lending booms can make the banking system more unstable and can lead to a higher probability of a banking crisis. the literature on microfinance is vast. one thorough discussion is in armendariz de aghion and morduch ( 2005 ). when stock markets in emerging - market countries are opened to foreign capital, dividend yields fall, average stock prices increase, and liquidity goes up. see levine and zervos ( 1998 ) ; bekaert, harvey, and lumsdaine ( 2002 ) ; and henry ( 2000a, b

today, which is fostering better communication between csbs and state banking commissioners and the board of governors. improved communication is a top priority for me for several reasons. 2 / 4 bis central bankers'speeches first, it is very much my approach to government service, and leadership in particular, to do a lot of listening. a wise person once said that the most effective leaders do more listening than talking. when i became kansas ’ state bank commissioner, i started a twice - yearly series of roundtables with the chief executives of banks across the state. it was an excellent way for me to better understand the issues that were impacting bankers in a way that was less formal than when banks comment on rules and less fraught than the supervisory process. sure, it took time away from the office, from consultation with the legislature, and the deadlines all of us have faced. in my case, considering the size of kansas, it was also time away from home and family. however, i don ’ t have to tell those of you who have also found a lot of merit in such tours that it is an enormous advantage to find out what is on the minds of those in the field. the second, very straightforward reason to foster better communication with all of you is that the nature of financial regulation and supervision in the united states argues strongly for better coordination. to a much greater extent than in other nations, in the united states financial oversight is divided between the federal government and subnational authorities — the states. at the federal level, responsibility is further divided between different agencies, such as the fed, the fdic, the office of comptroller of the currency, and the national credit union administration. this system evolved over time, and as things stand, there are some advantages to this specialization. but this division of labor may, at times, inhibit information sharing, and as a general principle, better communication can help overcome this challenge. more specifically, better communication and information sharing between state banking commissioners and the federal reserve can further improve the early identification and resolution of emerging issues at community banks. harnessing and sharing these sometimes divergent views can serve to strengthen a financial regulatory system that shares responsibility among many state and federal agencies. better communication and information sharing will benefit both you and the federal reserve, but my motivation is that the fed has much to gain here. because states are responsible for chartering and co - supervising the large majority of community banks, they can provide a broader perspective into local community