What is the Appropriate Size of the Banking System?

Duisenberg School of Finance Policy Paper No. 28

29 Pages Posted: 9 Oct 2012  

Dirk Schoenmaker

Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM); Centre for Economic Policy Research (CEPR)

Dewi Werkhoven

Duisenberg School of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: October 8, 2012

Abstract

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.

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

JEL Classification: G21, G28, D21

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: https://ssrn.com/abstract=2158606 or http://dx.doi.org/10.2139/ssrn.2158606

Dirk Schoenmaker (Contact Author)

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam
Netherlands

HOME PAGE: http://www.rsm.nl/people/dirk-schoenmaker/

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Dewi Werkhoven

Duisenberg School of Finance ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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