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Benchmarking Financial Systems with a New Database

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How do financial systems around the world stack up? Which one has the highest number of bank accounts per capita? Where in the world do we find the lowest interest rate spreads, and where are they the highest? Which country has the most active stock market? Has competition among banks increased or decreased in recent years? Are financial institutions and financial markets in developed economies more or less stable than those in developing ones? Answers to these and many other interesting questions can be found in the Global Financial Development Database, accompanying the 2013 Global Financial Development Report. Both the database and the report were published earlier this month.

The Global Financial Development Database is the most comprehensive publicly available dataset on financial development. It contains over 70 financial system indicators for more than 200 economies on an annual basis from 1960 to 2010. All these indicators are categorized in four broad categories: (a) size of financial institutions and markets (financial depth), (b) degree to which individuals can and do use financial services (access), (c) efficiency of financial intermediaries and markets in intermediating resources and facilitating financial transactions (efficiency), and (d) stability of financial institutions and markets (stability). The selection of these indicators, their detailed definitions and links between the empirical data and the conceptual literature on financial development are discussed in an underlying working paper.

Considerable effort was involved in collecting, cleaning and checking this unique database, which builds upon and improves upon several existing data sources. One of the earlier efforts in this area was the Database on Financial Development and Structure, introduced in Beck, Demirgüç-Kunt, and Levine (2000), and subsequently updated several times. The Global Financial Development Database extends, updates and recalculates these country-by-country indicators, many of which are based on underlying data for individual institutions and markets. (For completeness, the Database on Financial Development and Structure has now been updated again, to be consistent with the more comprehensive Global Financial Development Database.)

In addition to the large electronic file with the Global Financial Development Database, there is also a smaller, pocket version of the dataset, published as the Little Data Book on Financial Development. The booklet shows a subset of indicators for the four categories of financial system characteristics (depth, access, efficiency, and stability) explored in the main database. The data are shown for individual countries as well as for country groups.

Uses of the global financial development database

The database has many possible uses. One of them is illustrated in the Statistical Appendix of the Global Financial Development Report, which uses a subset of the data illustrating the state of financial systems around the world in 2010. Table 1 below, adapted from the Statistical Appendix, shows how some of the countries compare relative to the overall distribution of countries around the world. The data presented in the Global Financial Development Report illustrate that deep financial systems do not necessarily provide high degrees of financial access; that highly efficient financial systems are not necessarily more stable than the less efficient ones, and so on. The data also demonstrate the effects of the global financial crisis. This is discussed in more detail in the underlying working paper.

Table 1. Countries and Their Financial System Characteristics (Example)

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Source: Data from and calculations based on the Global Financial Development Database.
Note: The four blue bars summarize where the country’s observation is vis-à-vis the global statistical distribution of the variable in the Global Financial Development Database. Each blue bar corresponds to one quartile of the statistical distribution. So, values below the 25th percentile show only one full bar, values equal or greater than the 25th and less than the 50th percentile show two full bars, values equal or greater than the 50th and less than the 75th percentile show three full bars, and values greater than the 75th percentile show four full bars. The blue bars on the far left are based on a simple (unweighted) average of the eight financial characteristics, each converted to a 0–100 scale. For details, see
Čihák, Demirgüç-Kunt, Feyen, and Levine (2012).

The Global Financial Development Database can also be used to create map-based visualizations. Figure 1 below shows one such example. It uses the dataset to emphasize the uneven sizes of financial systems around the globe. The figure illustrates that, for example, financial systems of many individual European countries are larger (in terms of total assets) than the combined financial systems of all countries in Sub-Saharan Africa.

Figure 1. The Uneven Size of Financial Systems

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The Global Financial Development Database will be updated on an ongoing basis as financial systems evolve. It is expected that its coverage will increase as more data are compiled, especially on non-bank financial institutions and financial markets, where the data coverage is still lower than in the banking sector. These updates and extensions will be reflected in future editions of the Global Financial Development Report and the Little Data Book on Financial Development.

How do financial systems compare globally?

Returning to the initial question of this blog post, how do financial systems around the world stack up? Table 2 below (adapted from Chapter 1 of the Global Financial Development Report) provides a partial answer by showing summary statistics for the main income groups of countries. It illustrates that while financial systems in high-income countries tend to have more depth, provide more access, and are more efficient than those in lower-income countries, they score about the same in terms of stability.

How about answers to the other questions mentioned in our opening paragraph? We encourage you to download the dataset, explore the data, find the answers, and send us your responses and suggestions to GFDR2013@worldbank.org!

Table 2. Financial System Characteristics Summary, by Income Group, 2010

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Source: Calculations based on the Global Financial Development Database.
Note: The indicators are on a scale from 0 to 100, relative to the distribution of the variables for 203 jurisdictions in 1960-2010. Financial Institutions—Depth: private credit/GDP (%); Access: number of accounts per 1,000 adults in commercial banks; Efficiency: net interest margin (inverse); Stability: z-score. Financial Markets—Depth: (stock market capitalization + outstanding domestic private debt securities)/GDP; Access: market capitalization outside the top 10 largest companies (%); Efficiency: stock market turnover ratio (%); Stability: annual standard deviation of the price of a 1-year sovereign bond divided by the annual average price of the 1-year sovereign bond. For details, see
Čihák, Demirgüç-Kunt, Feyen, and Levine 2012.

References:

Beck, Thorsten, Aslı Demirgüç-Kunt, and Ross Levine. 2000. “A New Database on the Structure and Development of the Financial Sector.” World Bank Economic Review 14 (3): 597–605.

Beck, Thorsten, Aslı Demirgüç-Kunt, and Ross Levine. 2010. “Financial Institutions and Markets across Countries and over Time: The Updated Financial Development and Structure Database.“ World Bank Economic Review 24(1): 77-92

Čihák, Martin, Aslı Demirgüç-Kunt, Erik Feyen, and Ross Levine. 2012. “Benchmarking Financial Systems around the World.” World Bank Policy Research Working Paper 6175.

World Bank. 2012a. Global Financial Development Report 2013: Rethinking the Role of the State in Finance, World Bank, Washington DC.

World Bank. 2012b. Little Data Book on Financial Development 2013. World Bank, Washington DC.


Authors

Erik Feyen

Head Global Macro-Financial Monitoring and Lead Financial Sector Economist

Asli Demirgüç-Kunt

Former Chief Economist, Europe and Central Asia Region

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