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Revised 11 January 2003.

Abstract

The recent evolution of the financial sector and its consolidation in the emerging market economies was driven more or less by the same set of events as those in the mature industrial economies. As a consequence of recent transformations, the significance of the banking sector has been on the decline globally. The emerging market economies were not an exception to this generalisation. A great deal of consolidation of the financial sector took place in the emerging market economies. Financial authorities, rather than market forces frequently guided the consolidation process. Although since the mid-1990s bond markets recorded a remarkable growth, they are still small in absolute as well as relative terms. The slow growth of the bond markets is having a decisive impact on the banking system. The onward march of financial globalisation has in a myriad ways been influencing the evolution of financial structure and management practices in the emerging market economies. The domestic banking and financial sector have benefited from the entry of the large foreign banks in several direct and indirect ways.