The purpose of this paper is to highlight some of the key developments of markets and institutions at the global level over the past few decades by referring to the evolution of institutions from the government-led system to a market-led system. The paper argues that innovation and deregulation in the financial sector led to acceleration of the process of globalisation in which both markets and institutions are becoming increasingly integrated and more efficient. The paper highlights the role of trade liberalisation in financial services as a way of increasing efficiency and better use of national resources. The paper also highlights the role of consolidation of financial institutions as one of the ingredients of the new developments of markets and institutions. The paper also provides brief highlights of six other papers in this special issue that analyse and discuss some of the global aspects of markets and institutions.

This introductory article examines the role of capital in financial institutions — why it is important, how market-generated capital ‘requiremenents’ differ from regulatory requirments and the form that regulatory requirements should take. Along the way, we examine historical trends in bank capital, problems in measuring capital, and some possible unintended consequences of capital requirements. Within this framework, we evaluate how the contributions to this special issue advance the literature and suggest topics for future research.