Empirical Project 10 Solutions

These are not model answers. They are provided to help students, including those doing the project outside a formal class, to check their progress while working through the questions using the Excel or R walk-throughs. There are also brief notes for the more interpretive questions. Students taking courses using Doing Economics should follow the guidance of their instructors.

Part 10.1 Summarizing the data

  1. Explanations of why each indicator may be a good measure or may give misleading information of that category follow:

Depth

Access

Stability

  1. Solution figures 10.1, 10.2, and 10.3 show the correlations for each category of indicator. The Depth indicators are positive and strongly correlated with each other (coefficient is almost 1). The indicators for Access are also positively correlated; the correlations are moderately strong, although the percentage of firms with a bank loan or line of credit is highly correlated with the percentage of small firms with a bank loan or line of credit. The correlation between the indicators of stability is very small.
  GFDD.AI.01 GFDD.AI.02 GFDD.AI.03 GFDD.AI.04
Bank accounts per 1,000 adults (GFDD.AI.01) 1.00      
Bank branches per 100,000 adults (GFDD.AI.02) 0.36 1.00    
Firms with a bank loan or line of credit (%) (GFDD.AI.03) 0.42 0.47 1.00  
Small firms with a bank loan or line of credit (%) (GFDD.AI.04) 0.47 0.50 0.97 1.00

Correlation table for Access indicators.

Solution figure 10.1 Correlation table for Access indicators.

  GFDD.DI.01 GFDD.DI.02
Private credit by deposit money banks to GDP (%) (GFDD.DI.01) 1.00  
Deposit money banks’ assets to GDP (%) (GFDD.DI.02) 0.96 1.00

Correlation table for Depth indicators.

Solution figure 10.2 Correlation table for Depth indicators.

  GFDD.SI.01 GFDD.SI.05
Bank Z-score (GFDD.SI.01) 1.00  
Bank regulatory capital to risk-weighted assets (%) (GFDD.SI.05) 0.002 1.00

Correlation table for Stability indicators.

Solution figure 10.3 Correlation table for Stability indicators.

  1. Extreme values appear to be an issue for most indicators (except Firms with a bank loan or line of credit, and Small firms with a bank loan or line of credit).

Box and whisker plot: Private credit by deposit money banks to GDP (%).

Solution figure 10.4 Box and whisker plot: Private credit by deposit money banks to GDP (%).

Box and whisker plot: Deposit money banks’ assets to GDP (%).

Solution figure 10.5 Box and whisker plot: Deposit money banks’ assets to GDP (%).

Box and whisker plot: Bank accounts per 1,000 adults.

Solution figure 10.6 Box and whisker plot: Bank accounts per 1,000 adults.

Box and whisker plot: Bank branches per 100,000 adults.

Solution figure 10.7 Box and whisker plot: Bank branches per 100,000 adults.

Box and whisker plot: Firms with a bank loan or line of credit (%).

Solution figure 10.8 Box and whisker plot: Firms with a bank loan or line of credit (%).

Box and whisker plot: Small firms with a bank loan or line of credit (%).

Solution figure 10.9 Box and whisker plot: Small firms with a bank loan or line of credit (%).

Box and whisker plot: Bank Z-score.

Solution figure 10.10 Box and whisker plot: Bank Z-score.

Box and whisker plot: Bank regulatory capital to risk-weighted assets (%).

Solution figure 10.11 Box and whisker plot: Bank regulatory capital to risk-weighted assets (%).

High income: non-OECD High income: OECD Low income Lower middle income Upper middle income
2000 63.89 89.67 15.26 28.10 45.60
25 32 26 45 44
2001 67.17 90.06 14.96 27.85 46.79
25 32 26 47 45
2002 68.69 91.16 14.98 27.61 45.17
26 32 27 48 46
2003 67.29 92.75 15.71 27.76 44.80
26 32 27 48 46
2004 63.35 94.17 15.20 28.61 44.92
27 32 27 48 46
2005 62.19 98.79 15.25 30.36 46.68
27 32 27 48 45
2006 62.77 105.78 15.86 30.35 48.37
27 32 26 48 46
2007 65.25 110.92 16.57 32.02 50.24
27 31 26 48 47
2008 68.73 117.73 18.28 34.73 54.25
27 31 26 48 47
2009 79.37 123.16 19.11 37.65 58.59
25 30 25 47 47
2010 78.77 120.75 20.30 37.23 58.52
26 30 25 48 47
2011 78.00 118.81 21.58 37.88 58.91
26 29 25 46 47
2012 78.85 117.64 21.19 38.63 59.95
26 29 23 47 47
2013 80.12 115.07 22.87 40.28 61.48
26 29 23 46 47
2014 83.81 112.49 23.56 42.46 64.68
25 29 22 44 45

Deposit money banks’ assets to GDP (%), 2000–2014, by income group.

Solution figure 10.12 Deposit money banks’ assets to GDP (%), 2000–2014, by income group.

East Asia and Pacific Europe and Central Asia Latin America and Caribbean Middle East and North Africa North America South Asia Sub-Saharan Africa
2000 67.56 58.61 46.93 60.92 68.46 28.12 20.64
25 45 33 17 2 7 43
2001 67.25 58.10 48.89 62.51 83.10 29.39 20.53
25 46 33 18 2 7 44
2002 62.32 58.67 49.10 61.92 94.57 32.06 20.50
26 47 33 19 2 7 45
2003 61.24 60.47 48.25 59.39 92.08 33.15 21.43
26 47 33 19 2 7 45
2004 60.62 62.51 46.69 57.02 91.04 36.02 20.99
26 47 33 20 2 7 45
2005 62.69 67.64 47.28 56.14 94.11 38.77 21.48
25 46 33 20 2 7 46
2006 63.32 73.50 47.17 56.31 100.84 34.78 22.12
25 47 33 20 2 8 44
2007 64.10 79.04 48.88 55.71 101.98 37.70 22.78
25 46 33 21 2 8 44
2008 68.48 85.71 51.88 57.94 104.46 41.53 24.38
25 46 33 21 2 8 44
2009 74.95 92.90 55.29 65.27 66.73 43.88 26.32
25 44 33 21 1 8 42
2010 75.56 91.18 54.30 64.12 60.50 45.36 26.15
25 46 32 21 1 8 43
2011 75.97 90.08 54.39 65.47 59.34 45.63 26.94
23 46 32 20 1 8 43
2012 75.11 89.98 55.87 65.36 58.29 45.79 27.45
24 46 32 20 1 8 41
2013 79.25 88.83 56.44 66.47 58.08 46.44 28.39
24 46 32 20 1 8 40
2014 86.66 87.06 57.33 75.13 60.28 45.50 29.01
23 46 31 18 1 8 38

Deposit money banks’ assets to GDP (%), 2000–2014, by region.

Solution figure 10.13 Deposit money banks’ assets to GDP (%), 2000–2014, by region.

High income: non-OECD High income: OECD Low income Lower middle income Upper middle income
2000
2001 21.80 0.36 265.15 9.96
1 2 1 1
2002 28.47 38.91 285.32 10.46
1 2 1 1
2003 39.22 366.82 10.52
2 1 1
2004 592.08 1,095.45 78.59 243.98 406.29
9 2 15 22 12
2005 607.45 1,055.63 79.36 366.78 466.04
10 3 16 26 17
2006 657.89 1,172.50 80.45 394.09 485.32
10 3 18 27 20
2007 697.26 1,258.88 70.21 405.92 546.63
10 3 19 29 21
2008 778.63 1,511.63 89.02 412.18 594.75
11 4 20 31 21
2009 830.02 1,579.37 96.29 427.92 623.42
12 4 21 32 22
2010 956.33 1,590.49 121.95 475.07 634.92
14 4 22 31 22
2011 973.43 1,429.95 105.51 519.34 745.30
14 3 21 32 23
2012 982.11 1,184.27 122.68 546.57 692.47
13 5 20 30 22
2013 1,058.99 1,211.82 122.68 509.85 714.89
13 5 18 31 21
2014 1,101.30 1,230.74 101.69 632.79 805.33
13 5 11 23 18

Bank accounts per 1,000 adults, 2000–2014, by income group.

Solution figure 10.14 Bank accounts per 1,000 adults, 2000–2014, by income group.

East Asia and Pacific Europe and Central Asia Latin America and Caribbean Middle East and North Africa North America South Asia Sub-Saharan Africa
2000
2001 265.15 8.12
1 4
2002 285.32 29.19
1 4
2003 366.82 29.65
1 3
2004 580.53 537.83 521.01 368.07 425.56 126.12
5 8 8 6 4 29
2005 575.46 843.54 473.32 380.89 452.45 139.72
6 12 11 8 4 31
2006 516.70 919.94 528.12 388.46 487.81 145.62
9 12 12 8 4 33
2007 557.99 982.22 600.95 420.53 525.75 150.74
9 12 12 9 4 36
2008 713.03 1,092.63 651.44 463.48 458.24 167.85
10 12 12 11 5 37
2009 738.29 1,053.40 695.64 523.62 428.60 185.96
10 13 13 13 4 38
2010 764.47 1,116.05 750.63 523.34 431.42 216.89
10 15 13 13 5 37
2011 973.88 1,159.48 647.61 531.78 545.29 235.62
10 15 13 14 4 37
2012 796.89 1,156.74 695.38 536.23 560.50 277.71
11 14 12 14 4 35
2013 744.74 1,097.12 730.90 529.63 580.13 320.58
12 14 12 13 4 33
2014 863.20 1,161.06 797.02 542.29 672.26 413.40
11 14 11 8 4 22

Bank accounts per 1,000 adults, 2000–2014, by region.

Solution figure 10.15 Bank accounts per 1,000 adults, 2000–2014, by region.

Deposit money banks’ assets to GDP (%), 2000–2014, by income group.

Solution figure 10.16 Deposit money banks’ assets to GDP (%), 2000–2014, by income group.

Deposit money banks’ assets to GDP (%), 2000–2014, by region.

Solution figure 10.17 Deposit money banks’ assets to GDP (%), 2000–2014, by region.

Bank accounts per 1,000 adults, 2000–2014, by income group.

Solution figure 10.18 Bank accounts per 1,000 adults, 2000–2014, by income group.

Bank accounts per 1,000 adults, 2000–2014, by region.

Solution figure 10.19 Bank accounts per 1,000 adults, 2000–2014, by region.

Richer countries tend to have larger financial institutions and markets. Depth measure by deposit money banks’ assets to GDP has been increasing in all countries except in non-OECD high-income countries.

Richer countries have better access as measured by bank accounts per 1,000 adults. Access displays an upward trend in all groups except in high-income OECD countries.

The values of both indicators increase over time for all groups except the high-income OECD group in which access and depth fell for several years after the global financial crisis.

East Asia and Pacific Europe and Central Asia Latin America and Caribbean Middle East and North Africa South Asia Sub-Saharan Africa
2004 253.86 637.40 504.48 301.03 529.82 64.48
2005 336.63 1,262.14 471.72 324.82 531.27 76.57
2006 81.43 1,324.44 484.82 351.77 549.06 79.62
2007 85.34 1,380.43 520.49 393.35 573.51 132.21
2008 87.54 1,525.15 561.82 418.40 614.92 149.09
2009 90.62 1,501.88 633.35 436.77 227.03 195.23
2010 94.60 1,371.62 686.92 431.48 267.47 220.34
2011 105.83 1,419.89 688.62 420.16 334.88 236.72
2012 96.85 1,269.52 736.57 426.43 373.07 277.92
2013 101.48 1,043.82 755.75 427.68 399.85 309.17
2014 106.33 1,059.82 780.49 524.85 411.35 350.80

Population-weighted averages, 2004–2014.

Solution figure 10.20 Population-weighted averages, 2004–2014.

Income group 2010 average
High income: non-OECD 916.90
High income: OECD 1,356.47
Low income 123.06
Lower middle income 422.65
Upper middle income 635.71

Bank accounts per 1,000 adults: Winsorized averages for 2010.

Solution figure 10.21 Bank accounts per 1,000 adults: Winsorized averages for 2010.

The simple averages of Winsorized values are lower. The differences are large, suggesting that the average values before the Winsorization were driven by extreme values.

Without adjusting the data, the high-income OECD group has the best access. After the adjustment, however, access of the group is the second lowest.

Part 10.2 Comparing financial stability before and after the 2008 global financial crisis

  1. There has been a rapid increase in the number of regulations since the global financial crisis. Banks are now required to hold more capital and liquid assets against the risks they take. Investment banks are forced to focus on facilitating client trades rather than on trading using their own capital. In many countries, regulators force banks to be prepared to survive future financial crises. These changes have raised the capital–asset ratio and lowered the probability of default.
  1. Solution figures 10.22 to 10.25 provide the separate tables for the relevant indicators by region and income group. Values are rounded to two decimal places.
2007 2014
Income group Mean N SD Mean N SD Diff in means SD (diff in means) CI width
High income: non-OECD 12.14 32 6.67 11.57 25 6.60 –0.57 9.38 3.87
High income: OECD 11.66 32 8.27 11.83 31 6.81 0.17 10.71 3.62
Low income 7.75 25 4.74 9.49 9 4.50 1.73 6.54 3.98
Lower middle income 12.88 46 8.12 12.82 31 8.92 –0.05 12.07 4.06
Upper middle income 11.90 47 8.33 11.42 32 9.35 –0.49 12.52 4.16

Bank Z-score, by income group.

Solution figure 10.22 Bank Z-score, by income group.

2007 2014
Income group Mean N SD Mean N SD Diff in means SD (diff in means) CI width
High income: non-OECD 15.07 15 2.74 17.30 19 2.71 2.23 3.86 2.00
High income: OECD 12.01 32 1.43 16.79 31 4.27 4.79 4.50 1.70
Low income 21.58 4 7.97 21.0 6 5.18 –0.57 9.50 13.70
Lower middle income 18.36 24 6.23 17.03 30 4.67 –1.34 7.78 3.20
Upper middle income 15.83 27 3.58 16.25 32 2.29 0.42 4.25 1.60

Capital to asset ratio, by income group.

Solution figure 10.23 Capital to asset ratio, by income group.

2007 2014
Region Mean N SD Mean N SD Diff in means SD (diff in means) CI width
East Asia and Pacific 12.81 24 7.66 12.48 18 7.16 –0.34 10.48 4.77
Europe and Central Asia 8.92 51 7.12 7.98 43 6.29 –0.94 9.50 2.78
Latin America and Caribbean 13.09 35 6.64 12.60 28 6.80 –0.49 9.50 3.47
Middle East and North Africa 20.17 20 7.41 21.76 9.13 15 1.59 11.76 6.11
North America 19.37 3 3.15 17.78 3 6.26 –1.59 7.01 15.93
South Asia 10.85 8 8.49 10.38 6 2.53 –0.47 8.86 7.74
Sub-Saharan Africa 8.25 41 5.16 9.46 15 5.10 1.21 7.25 3.27

Bank Z-score, by region.

Solution figure 10.24 Bank Z-score, by region.

2007 2014
Region Mean N SD Mean N SD Diff in means SD (diff in means) CI width
East Asia and Pacific 14.58 12 4.98 16.45 15 4.17 1.86 6.49 3.88
Europe and Central Asia 15.12 44 5.48 17.85 45 3.79 2.73 6.66 2.02
Latin America and Caribbean 14.93 17 2.34 15.28 17 1.77 0.35 2.93 1.50
Middle East and North Africa 15.21 10 3.65 15.27 15 2.68 0.06 4.53 3.01
North America 13.80 2 1.00 14.30 2 0.10 0.50 1.00 12.19
South Asia 12.30 2 0.00 15.36 5 3.19 3.06 3.19 4.43
Sub-Saharan Africa 17.76 15 5.65 19.05 19 4.83 1.29 7.43 3.88

Capital to asset ratio, by region.

Solution figure 10.25 Capital to asset ratio, by region.

Confidence intervals for Bank Z-score, by income group.

Solution figure 10.26 Confidence intervals for Bank Z-score, by income group.

Confidence intervals for Capital to asset ratio, by income group.

Solution figure 10.27 Confidence intervals for Capital to asset ratio, by income group.

Confidence intervals for Bank Z-score, by region.

Solution figure 10.28 Confidence intervals for Bank Z-score, by region.

Confidence intervals for Capital to asset ratio, by region.

Solution figure 10.29 Confidence intervals for Capital to asset ratio, by region.

The bank regulatory capital to risk-weighted assets ratio increased between 2007 and 2014 in high-income countries and the change is statistically significant. Looking across regions, Europe and Central Asia experienced statistically significant rises in the ratio.