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What is the Appropriate Size of the Banking System?

Dirk Schoenmaker

VU University Amsterdam

Dewi Werkhoven

Duisenberg School of Finance

October 8, 2012

Duisenberg School of Finance Policy Paper No. 28

To measure the size of the banking system, a country’s banking assets divided by the country’s gross domestic product (GDP) is commonly applied as a yardstick. But is the banking assets to GDP ratio an appropriate yardstick? This paper shows that comparing a country’s banking sector only by using that country’s GDP does not capture the whole story as countries have distinctive financial needs. In particular, countries differ with regard to the number and size of multinational enterprises.

In a cross-country empirical study, we find a statistically significant relationship between the presence of large banks and the presence of multinationals, after controlling for the size of the country. We therefore suggest using an additional yardstick, which compares the size of large banks to the size of multinationals in a country.

Number of Pages in PDF File: 29

Keywords: Banking, too-big-to-save, multinationals

JEL Classification: G21, G28, D21

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Date posted: October 9, 2012  

Suggested Citation

Schoenmaker, Dirk and Werkhoven, Dewi, What is the Appropriate Size of the Banking System? (October 8, 2012). Duisenberg School of Finance Policy Paper No. 28. Available at SSRN: http://ssrn.com/abstract=2158606 or http://dx.doi.org/10.2139/ssrn.2158606

Contact Information

Dirk Schoenmaker (Contact Author)
VU University Amsterdam ( email )
De Boelelaan 1105
Amsterdam, 1081 HV
Dewi Werkhoven
Duisenberg School of Finance ( email )
Gustav Mahlerplein 117
Amsterdam, 1082 MS
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