Appendix I: Contemporaneous correlations (FSIs and Real GDP Growth)
Appendix II: Data Description
Appendix III: Econometric Models
Appendix IV: Model for Capital Adequacy
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I wish to thank without implication Kal Wajid, Gianni di Nicolo, Sean Craig, Francisco Vasquez, Stephanie Denis, and participants at a Monetary and Financial Systems Department for their useful comments. Kalin Tintchev provided valuable research assistance.
Slack (2003) shows that capital adequacy, asset quality (of lending institutions) and profit and competitiveness FSIs have the highest percentage of data collection relative to other FSIs.
These data have been gathered by the IMF through Article IV consultations and FSAPs.
Other cross country differences, including financial dollarization, banking system capitalization and portfolio risk, are also tested but not found significant.
The underlying conceptual model explaining bank capital, following Shrieves and Dahl (1992) is outlined in the appendix.
See appendix for an explanation of different econometric models.
Without access to the metadata from which FSIs are calculated, we are unable to test for individual effects of the business cycle on the numerator or the denominator of capital adequacy ratios.
The choice of instruments follows Podpiera (2004), although we find the rule of law index to correlate more strongly with the bcp index compared to the index for the control of corruption.
Shrieves and Dahl (1992),
Studies that have modeled the capital decision within a partial adjustment model include Peltzman (1970) and Marcus (1983).