The changing landscape of financial
market in Europe, the United States
and Japan
Michiel Bijlsma, Gijsbert Zwart
CPB 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
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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