Chapter 2:Indicators of Financial,Development,and Soundness because,in many couries,traditional bank deposits are the most common form of finan- cial savings.Saving through non-bank forms of financial intermediation are,therefore crucial to financial diversity,and development indicators for non-bank intermediaries such as insurance,pensions,and capital markets could be useful in gauging the degree to 3 which the population uses non-bank forms of financial savings.Hence,household and corporate holdings of non-bank financial assets (e.g.,bonds)could provide extra informa tion on the degree of access to financial savings The ratio of private sector bank credit to DP is a common measure of the provision of credit to economy, as well as of banking this in mented by information atio of loans tot osits.Whe volume of finance raised through the issuance of bonds and mone y market instruments should supplement information on bank credit.Analyzing trends in those indicators should reveal the overall degree to which the banking sector provides credit to firms and households.It is also useful to assess the sectoral distribution of private sector credit to gauge the alignment of bank credit with the distribution of domestic output.Therefore the relative proportion of total credit going to agriculture,manufacturing,and services would be relevant information in evaluating the adequacy of the level of credit provided to the econc A ke ns in market means of transfe ring funds s and making payments for goods T development of the payment system is o e,especially the cus on the variou instruments for making payments,including cash,checks,payment orders,wire transfers and debit and credit cards.The proportion of payments (volume and value)made with different payment instruments can reveal the developmental status of the payment sys- tem,with cash-based economies at the lower end of the spectrum.Some indicators such as the number of days for clearing checks,the number and distribution of clearing centers and the volume and value of checks cleared could provide general information on the effectiveness of existing mone nsfer mechanisms.In additi n.it is relevant to examine the variou s risks ed with ne ents sys cators such as acc Lo s redit,size o for by comp nting the qualitative infor Payment System The major risk mitigation services offered by the financial system include insur- ance (life and non-life)and derivative markets.The ratio of gross premiums to gDp is a popular indicator of development in the insurance industry,and this indicator could be supplemented with a breakdown of premiums between life and non-life insurance A deep and well-functioning insurance industry would offer a wide range of products in both the life and non-life business,including workers' medical,and health n In additio markets opt ns,futures,swaps,and structured finance produc where relevant in terms of available instruments,liquidity,and transaction costs,would be important,owing to their role in managing risk and in facilitating price discovery in spot markets. Liquidity service provided by financial systems is reflected in maturity transforma- tion and secondary market arrangements,which facilitate investment in high-yielding 2121 Chapter 2: Indicators of Financial Structure, Development, and Soundness 1 I H G F E D C B A 12 11 10 9 8 7 6 5 4 3 2 because, in many countries, traditional bank deposits are the most common form of finan￾cial savings. Saving through non-bank forms of financial intermediation are, therefore, crucial to financial diversity, and development indicators for non-bank intermediaries such as insurance, pensions, and capital markets could be useful in gauging the degree to which the population uses non-bank forms of financial savings. Hence, household and corporate holdings of non-bank financial assets (e.g., bonds) could provide extra informa￾tion on the degree of access to financial savings. The ratio of private sector bank credit to GDP is a common measure of the provision of credit to the economy, as well as of banking depth. Often, this indicator is supple￾mented by information on the ratio of loans to total bank deposits. Where available, the volume of finance raised through the issuance of bonds and money market instruments should supplement information on bank credit. Analyzing trends in those indicators should reveal the overall degree to which the banking sector provides credit to firms and households. It is also useful to assess the sectoral distribution of private sector credit to gauge the alignment of bank credit with the distribution of domestic output. Therefore, the relative proportion of total credit going to agriculture, manufacturing, and services would be relevant information in evaluating the adequacy of the level of credit provided to the economy. A key function of financial systems in market economies is to offer fast and secure means of transferring funds and making payments for goods and services. The state of development of the payment system is of interest here, especially the focus on the various instruments for making payments, including cash, checks, payment orders, wire transfers, and debit and credit cards. The proportion of payments (volume and value) made with different payment instruments can reveal the developmental status of the payment sys￾tem, with cash-based economies at the lower end of the spectrum. Some indicators such as the number of days for clearing checks, the number and distribution of clearing centers, and the volume and value of checks cleared could provide general information on the effectiveness of existing money transfer mechanisms. In addition, it is relevant to examine the various risks associated with the payments system, through indicators such as access to settlement credit, size of settlement balances, and so forth, thereby complementing the qualitative information from assessments of Core Principles for Systemically Important Payment Systems.8 The major risk mitigation services offered by the financial system include insur￾ance (life and non-life) and derivative markets. The ratio of gross premiums to GDP is a popular indicator of development in the insurance industry, and this indicator could be supplemented with a breakdown of premiums between life and non-life insurance. A deep and well-functioning insurance industry would offer a wide range of products in both the life and non-life business, including motor vehicle, marine, fire, homeowners, mortgage, workers’ compensation, and fidelity insurance and life insurance, as well as disability, annuities, medical, and health insurance. In addition, coverage of derivative markets—options, futures, swaps, and structured finance products––where relevant in terms of available instruments, liquidity, and transaction costs, would be important, owing to their role in managing risk and in facilitating price discovery in spot markets. Liquidity service provided by financial systems is reflected in maturity transforma￾tion and secondary market arrangements, which facilitate investment in high-yielding