Financial System, The Evolution Of Internal And Logical Analysis

Generally speaking, financial intermediaries and financial markets are most important components of financial system. They both can fulfill the task to transform savings into investment with financial instruments. According to this standard, financial system can be divided into two types: band-based and market-based financial system. Different countries usually have different types of financial systems, even the financial system of the same country is constantly changing and developing. Meanwhile, in recent years, financial innovation has propelled the innovation of financial instruments, and due to that, financial intermediaries and markets, as well as legislative and regulation authorities have made unceasing reform and adjustment. Under these circumstances, financial system seems to take on a look of a converging state. Why financial system evolves and how it evolves are the main objects this paper talks about.This paper first describes the evolution of financial systems in main developed countries. After reviewed the formation and development of financial systems as well as its converging trend in these countries, it points out that the evolution basically follows the rules that financial systems usually start from intermediaries-based system to market-based system and then begin to integrate. Economic development proposes functional requirements in finance, hence financial system expends and upgrades certain function to meet the demand so as to promote further economic development. The evolution of function is the reason of evolution of financial system. The functions of financial systems are similar, however, different factors, as economic development, culture and institutional environment, cause different forms in achieving these functions, which brings on differences of financial system. Financial intermediaries propels the development of financial instruments in order to provide the functions of risk management and enlarging financing scale, but in guarding against the risks, financial instruments at the same time bring out new risks and problems, which propel further development of financial institution. This is the logic of evolution of financial system. Financial intermediaries and financial markets are not competitive alternative, but to achieve the different functions of the financial system and complementary arrangements. Financial intermediaries and financial markets are not in a competitive or alternative relationship, however, they are both institutional arrangements to achieve different functions and to complete each other. This paper also explains the reason of diversity of financial system in different countries from other non-economic factors, such as legal and political factors. Finally, this paper gives a brief review of development of financial system in China. It analyzes the functional flaws existing in China's financial system, based on which comes out the reform targets and countermeasures for the future development of China's financial system.