The Structure of Banking Systems in Developed and Transition Economies

Abstract

In this paper, we first use cross-section regressions to determine the most important proximate causes of the observed structure of banking system structure for 26 developed OECD countries. Banking system structure is measured by four variables: bank assets, the number of banks, bank branches, and bank employees. We then apply the estimated regressions to 23 developing transition economies, in order to obtain benchmarks for the efficient structure of the banking systems in these countries. A comparison of the actual and benchmark measures of banking structure in these economies provides a basis for evaluating the state of development of their banking systems. In particular, we compute measures of "banking system convergence" - how closely the banking structure of the transition economies approach the OECD benchmark. In contrast to the economic growth literature, which takes the banking system structure as given, our focus is on the factors that determine banking system structure. Our goal is to provide objective and replicable multidimensional measures of banking system development for the transition economies, which can then be applied to questions of economic growth in these countries.

JEL Classification: G21, L8, O16, P34