The report, released yesterday to coincide with the anniversary of the September 2008 collapse of Lehman Brothers, urges countries to keep regulations simple because this will make them easier to enforce and monitor.
It notes this is especially important in countries where the existing institutional and supervisory capacity is weak.
The report, which looked at the role of the state in over 200 countries using data stretching back to the 1960s, also said public sector involvement in finance should be reduced so as not to create market distortions and to ensure competition in the sector thrives.
The report warned that over-reliance on state-owned banks risked crowding out more effective private institutions.
“As we emerge from the global financial crisis, governments may want to consider shifting toward indirect interventions,” World Bank group managing director Mahmoud Mohieldin said.