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 and

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

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