Bond markets and banks in emerging economies

As the financial system in most emerging economies is centred on banks, an important aspect of the development of bond markets is the impact on the banking system. One frequently heard worry is that bond markets could take business away from the banks. This raises some potential concerns for bank supervisors. On the other hand, if it means firms are less vulnerable to weaknesses in the banking system, corporate bond issuance can help central banks achieve steady economic growth. Banks also play an important role in developing a private sector bond market as they are often among the most important issuers, holders, dealers, advisers, underwriters, guarantors, trustees, custodians and registrars in this market. Indeed, banks are deriving more of their profits from such activities and less from lending. For this reason, it is important to have healthy banks to have a sound bond market. And a bond market may improve the health of banks, by improving market discipline.