The financial system is the basic framework for the flow of funds in an economy. It is a combination of financial factors (financial assets), market participants (intermediaries) and trading methods (markets), and Activities have a strong externality and to a certain extent, can be public goods.
Therefore, the government’s regulatory framework is also an inseparable part of the financial system.
In reality, countries around the world have different financial systems, and it is difficult to apply a relatively unified model for generalization. One is Germany, several big banks play a dominant role, the financial market is very unimportant; the other extreme is the United States, the financial market plays a big role, and the concentration of banks is very small. Between these two extremes, other countries, such as Japan and France, have traditionally been banking-based systems, but in recent years, financial markets have developed rapidly and become more and more important; the financial markets of Canada and the United Kingdom are more developed than Germany. However, the banking sector is more concentrated than the United States. Countries around the world have different financial systems.
In a general sense, a financial system consists of several interrelated components, these are:
Firstly, the financial sector (Financial Sector, various financial institutions, markets, which provide financial services to the non-financial sector of the economy);
Secondly, Financing Patten and Corporate Governance (Financing Patten and Corporate Governance, Residents, Businesses, Government Financing Behaviors and Fundamental Financing Tools; Organizational Framework for Coordinating the Interests of Company Participants);
Thirdly, the Regulation System.
The financial system is not a simple addition of these parts, but an adaptation and coordination.
Therefore, the difference between different financial systems is not only the difference between their components, but also the difference in their mutual relationship.
Due to the large differences in financial systems in different countries, many studies believe that there are different financial systems. One is a market-oriented financial system represented by the United States, and the other is a bank-led financial system represented by France and Germany.
In the United States, the proportion of bank assets to GDP is 53%, only one-third of Germany; on the contrary, the US stock market value of GDP is 82%, about three times higher than Germany. Therefore, the financial system of the United States and the United Kingdom is often referred to as ”market-led”, while Germany, France, and Japan are referred to as ”bank-based system”.