List of variables deployed in the study
| S.No. | Variables | Explanation | Source |
|---|---|---|---|
| A | Dependent variable | ||
| Financial stability | |||
| i | Bank Z score | It is the probability of default of a country's banking system. It is calculated as sd(ROA)a is the standard deviation of ROA | Global Financial Development Database, World Bank (GFDD, WB) |
| ii | Financial vulnerability index (FVI) | Principle component analysis of 12 indicators from four sectors, namely banking, external sector, non-financial sector and stock markets. It captures the vulnerability in these sectors and is a measure of financial instability | Authors calculation |
| B | Explanatory variables | ||
| i | NBFI | ||
| a | YOYOFI/TFA | Log of year-on-year growth rate of the proportion of financial assets of other financial institutions (YOYOFI) in total financial assets of a nation (TFA) | Global Monitoring Report on NBFI 2021, FSB |
| b | YOYNBFI lending | YOY growth rate of lending to the NBFI sector | BIS |
| c | YOYEF2/TEF | Log of year on year growth rate of the proportion of financial assets of EF2 (YOYEF2) to financial assets of total economic function (TEF) . | Global Monitoring Report on NBFI 2021, FSB |
| C | Control variables | ||
| i | Bank concentration | ||
| a | Asset concentration(3) (Bank3Conc) | Assets of the three largest banks as a proportion of total assets of the commercial banking system | GFDD, WB |
| b | Asset concentration(5) (Bank5Conc) | Assets of the five largest banks as a proportion of total assets of the commercial banking system | GFDD, WB |
| ii | Bank efficiency | ||
| a | Cost-to-income ratio (BankC_I) | It is measured as the ratio of operating expenses of a bank to the sum of net-interest revenue and other operating income | GFDD, WB |
| b | Overhead costs to total assets (%) (BankO_HCost/TA) | Ratio of operating expenses of a bank to the value of all assets held | GFDD, WB |
| iii | Bank profitability | ||
| Net interest margin (BankNIM) (%) | Percentage of bank's net interest revenue as a percentage of its average interest-bearing (total earning) assets | GFDD, WB | |
| iv | Bank regulatory ratio | ||
| Capital adequacy ratio (BankCRAR) | The percentage of total regulatory capital to total assets (risk-weighted) | GFDD, WB | |
| v | Liquidity | ||
| Liquid assets to deposits and short-term funding (%) | It is the ratio of liquid assets to deposits and short-term funding. Liquid assets include cash and bank balances, trading securities, loans and advances to banks and cash collaterals. Deposits and short-term funding includes total customer deposits and short-term borrowing | WDI, WB | |
| D | Country-level variables | ||
| i | Economic growth (GDP) | Annual percentage change in real gross domestic product | IFS, IMF |
| ii | Stock market development (StockTr) | Yoy growth of stocks traded divided by their respective market capitalization | WDI, WB |
| iii | Bond market development (OSpublicDebt) | Ratio of outstanding public debt securities to GDP. It covers long-term bonds and notes, treasury bills, commercial paper and other short-term notes | GFDD, WB |
| iv | Policyrate | The rate used by Central Bank of a nation to determine the monetary policy | IFS, IMF |
| v | Inflation | The growth rate (yoy) of GDP implicit deflatorb | Data Mapper, IMF |
| vi | Institutional quality | ||
| World Governance Index (WGI) | Principle component analysis of indicators of governance namely; regulatory quality, government effectiveness, political stability, voice and accountability, rule of law and control of corruption | World Governance Indicators (WGI), WB | |
| vii | Crisis | Dummy for the GFC of 2008. It is equal to 1 for the period 2007–2009 | |
| S.No. | Variables | Explanation | Source |
|---|---|---|---|
| A | |||
| Financial stability | |||
| i | Bank Z score | It is the probability of default of a country's banking system. It is calculated as | Global Financial Development Database, World Bank (GFDD, WB) |
| ii | Financial vulnerability index (FVI) | Principle component analysis of 12 indicators from four sectors, namely banking, external sector, non-financial sector and stock markets. It captures the vulnerability in these sectors and is a measure of financial instability | Authors calculation |
| i | NBFI | ||
| a | YOYOFI/TFA | Log of year-on-year growth rate of the proportion of financial assets of other financial institutions (YOYOFI) in total financial assets of a nation (TFA) | Global Monitoring Report on NBFI 2021, FSB |
| b | YOYNBFI lending | YOY growth rate of lending to the NBFI sector | BIS |
| c | YOYEF2/TEF | Log of year on year growth rate of the proportion of financial assets of EF2 (YOYEF2) to financial assets of total economic function (TEF) . | Global Monitoring Report on NBFI 2021, FSB |
| i | Bank concentration | ||
| a | Asset concentration(3) (Bank3Conc) | Assets of the three largest banks as a proportion of total assets of the commercial banking system | GFDD, WB |
| b | Asset concentration(5) (Bank5Conc) | Assets of the five largest banks as a proportion of total assets of the commercial banking system | GFDD, WB |
| ii | Bank efficiency | ||
| a | Cost-to-income ratio (BankC_I) | It is measured as the ratio of operating expenses of a bank to the sum of net-interest revenue and other operating income | GFDD, WB |
| b | Overhead costs to total assets (%) (BankO_HCost/TA) | Ratio of operating expenses of a bank to the value of all assets held | GFDD, WB |
| iii | Bank profitability | ||
| Net interest margin (BankNIM) (%) | Percentage of bank's net interest revenue as a percentage of its average interest-bearing (total earning) assets | GFDD, WB | |
| iv | Bank regulatory ratio | ||
| Capital adequacy ratio (BankCRAR) | The percentage of total regulatory capital to total assets (risk-weighted) | GFDD, WB | |
| v | Liquidity | ||
| Liquid assets to deposits and short-term funding (%) | It is the ratio of liquid assets to deposits and short-term funding. Liquid assets include cash and bank balances, trading securities, loans and advances to banks and cash collaterals. Deposits and short-term funding includes total customer deposits and short-term borrowing | WDI, WB | |
| i | Economic growth (GDP) | Annual percentage change in real gross domestic product | IFS, IMF |
| ii | Stock market development (StockTr) | Yoy growth of stocks traded divided by their respective market capitalization | WDI, WB |
| iii | Bond market development (OSpublicDebt) | Ratio of outstanding public debt securities to GDP. It covers long-term bonds and notes, treasury bills, commercial paper and other short-term notes | GFDD, WB |
| iv | Policyrate | The rate used by Central Bank of a nation to determine the monetary policy | IFS, IMF |
| v | Inflation | The growth rate (yoy) of GDP implicit deflatorb | Data Mapper, IMF |
| vi | Institutional quality | ||
| World Governance Index (WGI) | Principle component analysis of indicators of governance namely; regulatory quality, government effectiveness, political stability, voice and accountability, rule of law and control of corruption | World Governance Indicators (WGI), WB | |
| vii | Crisis | Dummy for the GFC of 2008. It is equal to 1 for the period 2007–2009 | |
Note(s):
aThe ROA, equity and assets are aggregated on a country level using unconsolidated data of banks from Bankscope and Orbis database. The sd (ROA) is calculated for country-years with at least 5 bank-level observations
bThe implicit deflator was calculated as the ratio of GDP in current local currency to GDP in constant local currency (base year: 2010)
Source(s): Authors' own creation
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