This paper develops a conceptual framework for analyzing the global financial system. The framework has two major objectives: to address differences in institutional structure across borders and to explain changes in these institutional structures over time. Applicability of the framework ranges widely, from analysis of the entire financial system to individual business strategy decisions and specific public policy choices. It rests on two basic premises: -Financial functions are more stable than financial institutions-that is, functions vary less across borders and change less over time. -Competition will cause evolution in institutional structures to produce greater efficiency in the performance of financial system functions. That is, institutional form follows its function. The evolution of the financial system is portrayed as an innovation spiral in which organized markets and intermediaries compete with each other in a static sense and complement each other in a dynamic sense.
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