Does institutional quality condition the impact of financial stability transparency on financial stability?

Figures & data

Figure 1. Average non-performing loans ratio and FST-index, 2000–2011.

The left-hand side figure shows the FST-index for all countries in the sample and for countries with below/above median scores for the perceived corruption index. The right-hand side figure shows the average NPL ratio for all countries in the sample and for countries with below/above median scores for the FST-index.

Table 1. Descriptive statistics of the variables (515 observations).

	(1)	(2)	(3)	(4)
	Mean	Stand. dev.	Minimum	Maximum
NPL	−3.165	1.075	−6.907	−0.519
FST-index	2.967	2.711	0.000	9.000
CPI-index	5.046	2.370	0.400	9.900
GE-index (497 obs)	0.572	0.885	−1.215	2.437
GDPPC	18,410.300	18,715.280	419.336	72,823.800
MARKCAP	64.057	61.870	0.010	464.721
CREDIT	70.093	49.667	0.186	312.019
REALINT	5.483	8.265	−20.129	48.341
INFL	4.665	4.305	−4.863	28.203
GDPG	4.280	3.762	−14.759	19.592
FINOPEN	3.596	6.785	0.414	75.757
EXCH	−0.502	8.466	−16.613	37.301
NONINT	36.416	12.219	7.977	77.234
COST	3.173	2.200	0.051	12.737
CONCEN	65.185	18.381	23.324	100.000

The dependent variable used is the natural logarithm of the transformed non-performing loans ratio (NPL). The FST-index is the Financial Stability Index of Horváth and Vaško (2016). The institutional quality measures are the CPI-index (corruption) and the GE-index (government effectiveness) as explained in the main text. Country-specific controls include GDP per capita (GDPPC), annual GDP growth (GDPG), yearly inflation in % (INFL), the real interest rate (REALINT), domestic credit provided to financial sector (CREDIT), the nominal exchange rate change (EXCH), the stock market capitalization (MARKCAP), and financial openness (FINOPEN). The bank-specific controls consist of non-interest income (NONINT), the overhead costs to total assets (COST), and banking concentration (CONCEN).

Table 2. The conditional effect of institutional quality on financial stability.

	(1)	(2)	(3)	(4)
Variables	NPL	NPL	NPL	NPL
FST-index	−0.044*	−0.170**	−0.037	−0.0742**
	(0.025)	(0.078)	(0.026)	(0.0354)
CP-index	−0.283*	−0.317**
	(0.150)	(0.155)
FST-index*CP-index		0.0253*
		(0.0138)
GE-index			−0.463	−0.703*
			(0.383)	(0.431)
FST-index*GE-index				0.0651*
				(0.035)
Country-specific controls	Yes	Yes	Yes	Yes
Bank-specific controls	Yes	Yes	Yes	Yes
Country fixed effects	Yes	Yes	Yes	Yes
Number of obs.	515	515	497	497
Number of countries	66	66	67	67
R-squared	0.376	0.361	0.350	0.350

This table presents fixed-effects regressions of Eq. 1(1) $Finstabilit{y}_{it}={\alpha }_{it}+{\beta }_{1}FSTinde{x}_{it}+{\beta }_{2}I{Q}_{it}+{\beta }_{3}FSTinde{x}_{it}\ast I{Q}_{it}+C_{it}+B_{it}+{\epsilon }_{it}$(1) . Robust standard errors clustered by country are shown in parentheses. *** p < 0.01, ** p < 0.05, and * p < 0.1.

Figure 2. Marginal effect of the FST-index on NPL conditional on institutional quality.

Horváth, R., and D. Vaško. 2016. “Central Bank Transparency and Financial Stability.” Journal of Financial Stability 22: 45–56. doi:10.1016/j.jfs.2015.12.003.

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