In East Asia – as in many other developing regions – the liberalisation and globalisation of financial markets over the past two decades has led to the exponential growth of stock markets in traditionally bank-based systems. The increased importance of equity finance has fuelled incentives for industrial firms to rely on stock markets instead of banks for external financing. The collective outcome of these individual choices has been the rapid securities market orientation of national financial systems. East Asian financial capitalisms, however, have not converged on the liberal market model epitomised by Britain and the United States. As we will see below, regulatory regimes, market operations and corporate governance models continue to diverge from those of financial liberalism.

The central proposition advanced here complements the major themes of this volume by viewing successful financial market reform and governance as a function of interacting systemic and domestic factors. It contains the normative implication that while global market integration has reshaped national institutions, the international architecture developed to manage the process needs to be sensitive to policy imperatives associated with national configurations of power and interest: effectiveness requires the articulation of national preferences on the input side, and policy space on the output side. Otherwise national systems will likely react against the architecture, impairing the necessary political cooperation underpinning regional and global governance.