The size and the nature of financial intermediation matters not only from the perspective of the risk exposure of financial institutions but also in terms of the cost of credit and the effectiveness with which monetary policy is transmitted to the economy. This paper looks at how the forms of finance have changed in major emerging market economies (EMEs) in recent years and what this means for monetary and financial stability in these economies. It argues that the greater access of households to bank credit and of EME corporations to domestic and external securities debt markets is a double-edged sword. On the one hand, it has helped foster financial development in EMEs, diversifying funding sources, and reducing credit risk concentration. On the other hand, it has contributed to increasing risks and vulnerabilities – as many recent financial market turbulences illustrated. These developments pose challenges to EM monetary authorities in containing monetary and financial stability risks as well as designing appropriate response.