The changing landscape of financial market in Europe, the United States and Japan Michiel Bijlsma, Gijsbert Zwart CPB Netherland Bureau for Economic Policy.

The changing landscape of financial market in Europe, the United States and Japan

Michiel Bijlsma, Gijsbert ZwartCPB Netherland Bureau for Economic Policy Analysis

based on DP available at www.cpb.nl and www.bruegel.org

Motivation

• Supposed relation between financial market structure (market-based versus bank-based) and growth or stability– More R&D and innovation in equity financed markets– Bank-based financing more stable through the cycle,

but suffers more in banking crisis– Market-based financing ‘spare tire’ during crisis, but

may be more volatile

• But analysis should start with classification

Motivation

• Bank-based EU versus market-based US oversimplifies reality

• Differences in financial sector structure within europe large

• Indicators used are low-dimensional• Financial sector structure is changing• What are meaningful indicators of financial

market structure?

Indicators in the paper

• Data on 23 indicators related to – Bank-intermediated credit– Market intermediated credit– Consumer finances– Structure of the banking sector

• Paper is mostly descriptive

Data sources

• Combine data from multiple sources– BIS– IMF– National Central Banks– ECB– OECD– EVCA yearbooks, NVCA– UNCTAD– Eurostat– Bankscope

Method

• Principal components analysis– Find linear combinations of dimensions that explain the

largest amount of variance– Issue: using multiple correlated variables biases the

principal components

• Group countries– Define distance measure, choose number of groups– Simple choice: K-means clustering– Issue: grouping may depend on measure

Method

• To group countries, we used the following indicators

Results

Results

Results

Results

Results

Results

Results

Results

Results

Results

Results

Conclusions

• Difference in financial market structure large within Europe

• One-dimensional indicators do not suffice• PCA combined with clustering gives intuitive

classification• Market-based countries can have large banks• Further research– relation with real economy– Changes over time