A "tool" in financial development is an institution or policy that can be used to "fix" a problematic economy. More specifically, a tool in this sense is a means of stabilizing the macro-economic situation in an economy. For financial development, these tools concern both the regulatory and market-based mechanisms to create a welcoming investment climate in those societies that are struggling to regularize their finances.
Macroeconomics
A tool implies the ability to fix something that is not working. In many states in the developing world, including eastern Europe and Ireland, the financial sector has not reached the level necessary to fully compete in the global economy. The meltdowns throughout Europe since 2003 have harmed even the more advanced financial systems. The ultimate purpose of a financial tool is to serve as a mechanism that both stabilizes the currency and reassures both the consumer and the investor.
Regulation
After the American corporate scandals of 2000 and 2001, regulation developed into the main tool for restructuring the financial sector. The Sarbanes-Oxley legislation of 2002 established a new set of regulatory bodies to investigate and prosecute conflicts of interest in financial regulation and rating. Those firms that rate the credit worthiness of companies cannot, at the same time, be involved with those same firms in investments. Maintaining a transparent and independent credit rating regime was the essential purpose of Sarbanes-Oxley, and the legislative process in this case became an important financial tool.
Banking
Most of the world's central banks are privately owned. This, itself, is considered a tool of sorts, since in theory, the purpose of private ownership is to remove macroeconomic decisions from the hands of politicians and put them in the hands of business. This can also lead to business using macroeconomics as a means to enrich themselves. The market itself becomes a tool, since the central bank can only issue the money necessary to economic growth -- no more and no less. The money supply responding to market signals is an essential, if not the essential, tool for financial development. A stable currency and inflation rate is the primary purpose of this tool.
Local Development
In 2007, the Organization for Economic Cooperation and Development issued a report on financial tools for local development. The main issues in the report, especially for hurting economies, touched on the need to engage in more public-private partnerships that can improve the financial environment while keeping a close watch on the business community. In other words, public-private partnerships are meant to maintain the market sector of the economy in the framework that stresses the common good over personal profit. Development banks and regional funds that specialize in a specific area or sector should be used to both stabilize the financial climate as well as place this financial development in capable hands. These banks can be invaluable for advice and protection for local development initiatives.
