Empirical project 10 Characteristics of banking systems around the world
Learning objectives
In this project you will:
- compare characteristics of banking systems around the world and across time
- use box and whisker plots to summarize distributions and identify outliers (Part 10.1)
- calculate weighted averages and explain the differences between weighted and simple averages (Part 10.1)
- use confidence intervals to assess changes in the stability of financial institutions before and after the 2008 global financial crisis (Part 10.2).
Key concepts
- Concepts needed for this project: mean, median, standard deviation, box and whisker plot, correlation/correlation coefficient, and confidence interval (for difference in means).
- Concepts introduced in this project: weighted average.
Introduction
Core Economics website projects
This empirical project is related to material in:
Credit, money, and banks create opportunities for mutual gain, allowing firms and individuals to rearrange the timing of their spending by borrowing, lending, investing, and saving. When banking systems work well, they can allocate resources efficiently to firms and households, contributing to economic development and fostering economic wellbeing. However, if banking systems function poorly, they can hamper economic growth and make economies unstable, which in turn prevent households and firms from accessing or using the financial resources they need.
A recent example of poorly functioning banking systems was the 2008 global financial crisis, which was largely due to banks increasing their borrowing to extend more loans for housing (often to riskier borrowers) and buying more financial assets based on bundles of these housing loans. (You can read more about the causes and effects of the global financial crisis in Section 17.8 of The Economy.)
The crisis highlighted important issues in data collection and measurement, as policymakers lacked good quality, cross-country, and cross-time (so-called ‘time series’) data on financial systems. In response to this need for better data, researchers at the World Bank put together the Global Financial Development Database, which contains a variety of measures that policymakers can use to compare financial systems across countries and time. While stability is a key measure of interest after the 2008 global financial crisis, the Database also has information about other dimensions such as the size of financial systems and the degree to which individuals and firms can access financial services.
We will be using this database to explore the following questions:
- How do banking systems around the world differ in size and in the access that they provide to financial services?
- Have banking systems become more stable since the 2008 global financial crisis?
