bankdominated

Bankdominated describes a financial system in which banks and the banking sector exert predominant influence over credit allocation, corporate finance, and, in some cases, broader economic activity. It is a term used in comparative political economy and financial studies to contrast systems where banks are central intermediaries with those where capital markets and nonbank financial institutions play the leading role.

Key features commonly associated with bankdominated systems include a high share of credit provided by banks, close lender-borrower relationships, and the practice of relationship lending where banks accumulate soft information about firms. Corporate financing tends to rely more on bank loans and credit facilities than on equity or bond markets. Bank ownership, cross-holdings, and close ties to firms or local governments can reinforce the stability of supply but may also impede competition and hinder rapid reallocation of resources.

The approach contrasts with market-based systems, where firms rely more on equity and bond markets for financing, and where external investors and well-developed capital markets play a stronger role in corporate governance. Bankdominated arrangements can contribute to long-term investment and creditor coordination but may also concentrate risk, create barriers to entry for new firms, and heighten susceptibility to banking crises or regulatory capture if the sector dominates policy discussions.

The term is descriptive and refers to a spectrum rather than a fixed category. Economies vary in the degree of bank dominance, reflecting regulatory frameworks, the depth of capital markets, and the balance between financial intermediaries.