Anti-money laundering regulations’ effectiveness in ensuring banking sector stability: Evidence of Western Balkan

Figures & data

Figure 1. Relevant actors to AML/FT.

Source: Economic Governance Support Unit (EGOV), based on European Court of Auditors, 2020.³

Table 1. Variable descriptions and data sources

Variable	Denominations	Acronyms	Source
Dependent variable	Banking sector stability	$\mathrm{B}\mathrm{S}{\mathrm{S}}_{\mathrm{i},\mathrm{t}}$	International monetary fund
Independent variable	Anti-money laundering index	$\mathrm{A}\mathrm{M}{\mathrm{L}}_{\mathrm{i},\mathrm{t}}$	Basel Institute on Governance
Explanatory variables	Non-performing loans Domestic credit financial sector Return on assets Herfindahl Hirschman index Inflation Unemployment rate Gross domestic product growth	$\mathrm{N}\mathrm{P}{\mathrm{L}}_{\mathrm{i},\mathrm{t}}$ $\mathrm{D}\mathrm{C}\mathrm{F}{\mathrm{S}}_{\mathrm{i},\mathrm{t}}$ $\mathrm{R}\mathrm{O}{\mathrm{A}}_{\mathrm{i},\mathrm{t}}$ $\mathrm{H}\mathrm{H}{\mathrm{I}}_{\mathrm{i},\mathrm{t}}$ $\mathrm{I}\mathrm{N}{\mathrm{F}}_{\mathrm{i},\mathrm{t}}$ $\mathrm{U}\mathrm{E}{\mathrm{R}}_{\mathrm{i},\mathrm{t}}$ $\mathrm{G}\mathrm{D}{\mathrm{P}}_{\mathrm{i},\mathrm{t}}$	World bank indicator World bank indicator International Monetary Fund World bank indicator World bank indicator World bank indicatorWorld bank indicator

Source: Author’s description

Figure 2. The trend of banking sector stability.

Source: IMF dataset and author’s calculation

Table 2. Summary of descriptive statistics

Variables	$\mathbf{B}\mathbf{S}{\mathbf{S}}_{\mathbf{i},\mathbf{t}}$	$\mathbf{A}\mathbf{M}{\mathbf{L}}_{\mathbf{i},\mathbf{t}}$	$\mathbf{N}\mathbf{P}{\mathbf{L}}_{\mathbf{i},\mathbf{t}}$	$\mathbf{D}\mathbf{C}\mathbf{F}{\mathbf{S}}_{\mathbf{i},\mathbf{t}}$	$\mathbf{R}\mathbf{O}{\mathbf{A}}_{\mathbf{i},\mathbf{t}}$	$\mathbf{H}\mathbf{H}{\mathbf{I}}_{\mathbf{i},\mathbf{t}}$	$\mathbf{I}\mathbf{N}{\mathbf{F}}_{\mathbf{i},\mathbf{t}}$	$\mathbf{U}\mathbf{E}{\mathbf{R}}_{\mathbf{i},\mathbf{t}}$	$\mathbf{G}\mathbf{D}{\mathbf{P}}_{\mathbf{i},\mathbf{t}}$
Minimal	3.068	2.070	1.933	24.341	−1.971	0.046	−1.584	9.010	−15.306
Mean	8.324	4.781	10.119	54.638	1.129	0.136	1.526	20.373	2.460
Maximal	11.291	6.330	22.244	74.890	3.182	0.248	7.694	35.310	12.434
Std. dev.	5.858	1.086	6.025	12.159	0.066	0.077	1.729	6.597	3.949
JB P-value	0.143	0.131	0.141	0.179	0.213	0.191	0.130	0.227	0.103
Observation	60	60	60	60	60	60	60	60	60

Source: Author’s calculation.

Table 3. Correlation matrix

Variables	$\mathbf{B}\mathbf{S}{\mathbf{S}}_{\mathbf{i},\mathbf{t}}$	$\mathbf{A}\mathbf{M}{\mathbf{L}}_{\mathbf{i},\mathbf{t}}$	$\mathbf{N}\mathbf{P}{\mathbf{L}}_{\mathbf{i},\mathbf{t}}$	$\mathbf{D}\mathbf{C}\mathbf{F}{\mathbf{S}}_{\mathbf{i},\mathbf{t}}$	$\mathbf{R}\mathbf{O}{\mathbf{A}}_{\mathbf{i},\mathbf{t}}$	$\mathbf{H}\mathbf{H}{\mathbf{I}}_{\mathbf{i},\mathbf{t}}$	$\mathbf{I}\mathbf{N}{\mathbf{F}}_{\mathbf{i},\mathbf{t}}$	$\mathbf{U}\mathbf{E}{\mathbf{R}}_{\mathbf{i},\mathbf{t}}$	$\mathbf{G}\mathbf{D}{\mathbf{P}}_{\mathbf{i},\mathbf{t}}$
$\mathbf{B}\mathbf{S}{\mathbf{S}}_{\mathbf{i},\mathbf{t}}$	1.000
$\mathbf{A}\mathbf{M}{\mathbf{L}}_{\mathbf{i},\mathbf{t}}$	0.479	1.000
$\mathbf{N}\mathbf{P}{\mathbf{L}}_{\mathbf{i},\mathbf{t}}$	0.466	0.386	1.000
$\mathbf{D}\mathbf{C}\mathbf{F}{\mathbf{S}}_{\mathbf{i},\mathbf{t}}$	0.495	0.332	0.104	1.000
$\mathbf{R}\mathbf{O}{\mathbf{A}}_{\mathbf{i},\mathbf{t}}$	−0.250	−0.303	−0.363	−0.137	1.000
$\mathbf{H}\mathbf{H}{\mathbf{I}}_{\mathbf{i},\mathbf{t}}$	−0.035	−0.336	−0.183	0.114	0.478	1.000
$\mathbf{I}\mathbf{N}{\mathbf{F}}_{\mathbf{i},\mathbf{t}}$	−0.072	0.133	0.195	−0.171	−0.210	−0.096	1.000
$\mathbf{U}\mathbf{E}{\mathbf{R}}_{\mathbf{i},\mathbf{t}}$	−0.469	−0.450	−0.066	−0.329	0.137	0.271	−0.127	1.000
$\mathbf{G}\mathbf{D}{\mathbf{P}}_{\mathbf{i},\mathbf{t}}$	−0.142	−0.013	−0.135	−0.159	0.294	0.102	0.112	0.038	1.000

Source: Author’s calculation.

Table 4. VIF analysis

Variable	Vector Inflation Factor	1/VIF
$\mathbf{A}\mathbf{M}{\mathbf{L}}_{\mathbf{i},\mathbf{t}}$	1.74	0.573815
$\mathbf{N}\mathbf{P}{\mathbf{L}}_{\mathbf{i},\mathbf{t}}$	2.16	0.463200
$\mathbf{D}\mathbf{C}\mathbf{F}{\mathbf{S}}_{\mathbf{i},\mathbf{t}}$	1.50	0.664826
$\mathbf{R}\mathbf{O}{\mathbf{A}}_{\mathbf{i},\mathbf{t}}$	2.73	0.366031
$\mathbf{H}\mathbf{H}{\mathbf{I}}_{\mathbf{i},\mathbf{t}}$	1.77	0.566177
$\mathbf{I}\mathbf{N}{\mathbf{F}}_{\mathbf{i},\mathbf{t}}$	1.19	0.841065
$\mathbf{U}\mathbf{E}{\mathbf{R}}_{\mathbf{i},\mathbf{t}}$	1.44	0.692380
$\mathbf{G}\mathbf{D}{\mathbf{P}}_{\mathbf{i},\mathbf{t}}$	1.16	0.861840
Mean Value	1.71

Source: Author’s calculation.

Table 5. Estimation results

	Model 1		Model 2
Variable	Coefficient	P>|t|	Coefficient	P>|t|
$\mathrm{A}\mathrm{M}{\mathrm{L}}_{\mathrm{i},\mathrm{t}}$	.10002	0.000	.03628	0.019
$\mathrm{N}\mathrm{P}{\mathrm{L}}_{\mathrm{i},\mathrm{t}}$	.01186	0.009	.01411	0.003
$\mathrm{D}\mathrm{C}\mathrm{F}{\mathrm{S}}_{\mathrm{i},\mathrm{t}}$	.00241	0.189	.01107	0.234
$\mathrm{R}\mathrm{O}{\mathrm{A}}_{\mathrm{i},\mathrm{t}}$	.02802	0.417	.12744	0.241
$\mathrm{H}\mathrm{H}{\mathrm{I}}_{\mathrm{i},\mathrm{t}}$	.09667	0.755	−.48846	0.506
$\mathrm{I}\mathrm{N}{\mathrm{F}}_{\mathrm{i},\mathrm{t}}$	−.02139	0.065	−.24042	0.025
$\mathrm{U}\mathrm{E}{\mathrm{R}}_{\mathrm{i},\mathrm{t}}$	−.00821	0.013	−.20206	0.017
$\mathrm{G}\mathrm{D}{\mathrm{P}}_{\mathrm{i},\mathrm{t}}$	.00323	0.012	.01410	0.008
_cons	.50897	0.004	−.17412	0.681
Diagnostic tests
F-test	F = (12.26)	ρ = 0.0000	“-“	“-“
R-squared	0.6580	“-“	0.6516	“-“
Wald chi2(4)	“-“	“-“	chi2 = 9.22	ρ = 0.0303
X^2 heteroscedasticities	1.556	ρ = 0.2138	“-“	“-“
Sergan test	“-“	“-“	0.6312	ρ = 0.0762
Durbin chi (1)	“-“	“-“	3.1475	ρ = 0.1132
Wu-Hausman F	“-“	“-“	F (1,54)	ρ = 0.1162
Observation	60	“-“	60	“-“

Source: Author’s calculation using STATA Software