Understanding Bank-Based and Capital Market-Based Financial Systems Using BIS Data

A common way to compare financial systems across countries is by looking at the role banks play in providing credit to the real economy. The[Bank for International Settlements (BIS) has great data on credit across countries, making this kind of comparison very easy to do. Plotting the share of bank credit relative to total credit across time reveals some interesting patterns.px.gif

Bank share of total credit

In the US, banks play a much smaller role in credit provision compared to Europe and Asia. More than half of US credit is supplied by non-bank sources, such as capital markets. This makes the US a prime example of a “capital market-based” financial system, whereas European and Asian economies tend to be seen as “bank-based” systems.

The role of banks also changes with financial crises. In Japan, for example, banks' share of total credit fell until the Japanese banking crisis of the late 1990s, after which it began to rise again. Absolute figures show that this largely due to a decline in total credit, likely related to corporate deleveraging that accelerated through the 1990s. Interestingly, the opposite seems to have happened elsewhere. In Korea, banks' share declined after the Asian Financial Crisis (1997-98) and the Global Financial Crisis (2007-08). In Germany, banks' share peaked around the time of the Dot-Com Bubble.

Get the R script to create the chart here

Update (19 August 2024): Tidied up the R script and ran it to fetch the most recent data and additional history.