Association between NBFI growth and bank stability
| Variables | Expected sign | (1) | (2) | (3) | (4) | (5) | (6) | (7) |
|---|---|---|---|---|---|---|---|---|
| Dependent variable | Bank Zscore | |||||||
| YOYOFI/TFA | +/− | −0.0006** (0.0003) | −0.00057** (0.0003) | −.00077** (0.0003) | −0.00014 (0.00061) | 0.00002 (0.00043) | ||
| YOYEF2 | +/− | −0.00094 (0.00076) | ||||||
| YOYEF2/TEF | +/− | 0.00022 (0.0006) | ||||||
| Bank3Conc | +/− | −0.00033 (0.00059) | −.00026 (0.0014) | −0.00049 (0.00069) | −.00051 (0.0009) | −0.00033 (0.0008) | ||
| Bank5Conc | +/− | −0.0005 (0.0009) | −0.00017 (0.0009) | |||||
| BankC_I | − | −0.0057*** (0.0018) | −0.0053*** (0.002) | −0.0042** (0.002) | −0.0046*** (0.0017) | −0.001 (0.0023) | 0.00097 (0.002) | |
| Bank O_H cost/TA | − | −0.012* (0.007) | ||||||
| BankNIM | + | 0.047*** (0.006) | 0.031*** (0.007) | 0.03*** (0.011) | 0.026*** (0.0085) | 0.035*** (0.0077) | 0.048*** (0.011) | 0.048*** (0.099) |
| BankCRAR | + | 0.019*** (0.0053) | 0.019*** (0.0049) | 0.027*** (0.0061) | 0.019*** (0.0058) | 0.02*** (0.0047) | 0.025*** (0.0062) | |
| GDP | + | −0.0009 (0.0015) | −9.0e-06 (0.0016) | −0.0014 (0.0021) | −.00035 (0.0017) | 0.00052 (0.0014) | −0.0025 (0.003) | −0.0013 (0.002) |
| Inflation | − | −0.00023 (0.0015) | 0.00010 (0.0013) | −0.00047 (0.0017) | 0.00011 (0.0015) | −0.00009 (0.0012) | −0.0066** (0.0026) | −0.0018 (0.0018) |
| StockTr | + | 0.0004 (0.0003) | ||||||
| Liquidity | + | 0.0009 (0.0015) | ||||||
| OSpublicDebt | − | 0.0011 (0.0016) | ||||||
| WGI | + | 0.073*** (0.017) | ||||||
| Crisis | − | −0.046* (0.028) | −0.038 (0.025) | −0.028 (0.03) | −0.029 (0.029) | −0.033 (0.021) | −0.032 (0.029) | −0.049** (0.024) |
| Constant | 1.40*** (0.09) | 1.80*** (0.15) | 1.70*** (0.18) | 1.70*** (0.17) | 1.70*** (0.13) | 1.90*** (0.18) | 1.30*** (0.18) | |
| Number of observations | 164 | 165 | 134 | 162 | 167 | 136 | 125 | |
| Number of countries (N) | 11 | 11 | 11 | 11 | 11 | 11 | 11 | |
| Country Effects | Yes | Yes | Yes | Yes | Yes | Yes | Yes | |
| R squared | 0.95 | 0.95 | 0.95 | 0.94 | 0.95 | 0.96 | 0.97 | |
| Wald Chi-Square | 18701*** | 19268*** | 7749*** | 8253*** | 14815*** | 9414*** | 410084*** | |
| Variables | Expected sign | (1) | (2) | (3) | (4) | (5) | (6) | (7) |
|---|---|---|---|---|---|---|---|---|
| Dependent variable | Bank Zscore | |||||||
| YOYOFI/TFA | +/− | −0.0006** (0.0003) | −0.00057** (0.0003) | −.00077** (0.0003) | −0.00014 (0.00061) | 0.00002 (0.00043) | ||
| YOYEF2 | +/− | −0.00094 (0.00076) | ||||||
| YOYEF2/TEF | +/− | 0.00022 (0.0006) | ||||||
| Bank3Conc | +/− | −0.00033 (0.00059) | −.00026 (0.0014) | −0.00049 (0.00069) | −.00051 (0.0009) | −0.00033 (0.0008) | ||
| Bank5Conc | +/− | −0.0005 (0.0009) | −0.00017 (0.0009) | |||||
| BankC_I | − | −0.0057*** (0.0018) | −0.0053*** (0.002) | −0.0042** (0.002) | −0.0046*** (0.0017) | −0.001 (0.0023) | 0.00097 (0.002) | |
| Bank O_H cost/TA | − | −0.012* (0.007) | ||||||
| BankNIM | + | 0.047*** (0.006) | 0.031*** (0.007) | 0.03*** (0.011) | 0.026*** (0.0085) | 0.035*** (0.0077) | 0.048*** (0.011) | 0.048*** (0.099) |
| BankCRAR | + | 0.019*** (0.0053) | 0.019*** (0.0049) | 0.027*** (0.0061) | 0.019*** (0.0058) | 0.02*** (0.0047) | 0.025*** (0.0062) | |
| GDP | + | −0.0009 (0.0015) | −9.0e-06 (0.0016) | −0.0014 (0.0021) | −.00035 (0.0017) | 0.00052 (0.0014) | −0.0025 (0.003) | −0.0013 (0.002) |
| Inflation | − | −0.00023 (0.0015) | 0.00010 (0.0013) | −0.00047 (0.0017) | 0.00011 (0.0015) | −0.00009 (0.0012) | −0.0066** (0.0026) | −0.0018 (0.0018) |
| StockTr | + | 0.0004 (0.0003) | ||||||
| Liquidity | + | 0.0009 (0.0015) | ||||||
| OSpublicDebt | − | 0.0011 (0.0016) | ||||||
| WGI | + | 0.073*** (0.017) | ||||||
| Crisis | − | −0.046* (0.028) | −0.038 (0.025) | −0.028 (0.03) | −0.029 (0.029) | −0.033 (0.021) | −0.032 (0.029) | −0.049** (0.024) |
| Constant | 1.40*** (0.09) | 1.80*** (0.15) | 1.70*** (0.18) | 1.70*** (0.17) | 1.70*** (0.13) | 1.90*** (0.18) | 1.30*** (0.18) | |
| Number of observations | 164 | 165 | 134 | 162 | 167 | 136 | 125 | |
| Number of countries (N) | 11 | 11 | 11 | 11 | 11 | 11 | 11 | |
| Country Effects | Yes | Yes | Yes | Yes | Yes | Yes | Yes | |
| 0.95 | 0.95 | 0.95 | 0.94 | 0.95 | 0.96 | 0.97 | ||
| Wald Chi-Square | 18701*** | 19268*** | 7749*** | 8253*** | 14815*** | 9414*** | 410084*** | |
Note(s): ***, ** and * indicate significance at the 1%, 5% and 10% levels, respectively. The models are estimated using PCSE to account for heteroscedasticity, cross-section dependence and serial correlation
The results for association between shadow banking growth and banking stability are presented using Log of Bank Z score (BankZscore) as the dependent variable. The explanatory variables include the NBFI growth measured as the growth rate of the ratio of OFI financial assets to total financial assets (YOYOFI/TFA), yoy growth of financial assets of EF2 (YOYEF2) and growth rate of ratio of financial assets of EF2 to financial assets of total economic function (YOYEF2/TEF). Bank-specific variables include bank concentration of three largest banks (Bank3Conc), bank concentration of five largest banks (Bank5Conc), bank cost-to-income ratio (BankC_I), bank overhead cost to total assets (BankO_Hcost/TA), BankNIM and capital adequacy ratio (BankCRAR). Macro-economic variables include GDP, Inflation, StockTr, Liquidity, ratio of outstanding public debt to GDP (OSpublicDebt), World Governance Index (WGI) and crisis dummy
Source(s): Authors' own creation
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