I am trying to investigate the determinant of public confidence in the banking system, for a sample of 26 banks in the GCC.
I thought of the ratio of Deposits to Total Assets or the Log. Natural of Deposits (i.e. deposits behavior), are these suitable ? what other measures could be used ?
Do you mean measure for all banks in total, or measure for each individual bank? If all the banks together, I would use simply TED spread. It measures a trust between banks themselves, but it is still probably a very good proxy for the trust of public towards banks. When it comes to individual banks, I would use something similar (if oyu can obtain such data). Deposit-to-assets ratio (or similar ratios) do not need to reflect trust in banks. If there is a more conservative bank that decides to have more equity, your measure would indicate that it is a less trusted bank, which does not need to be the case at all.
For individual banks, you could also look at:
Capital adequacy ratio. The higher than the average of the banking industry, the better.
Dear Peter
yes, I'm indeed trying to examine the determinants of public trust or confidence for 26 banks individually. TED spread is a good measure but data for GCC banks is unavailable
Dear Arun
I've got the Jan. & Dec. stock price for these listed banks
do you suggest that I just put the stock price as it is, or maybe use the stock price growth: (P1 - P0) / P0 ?
Dear Djordje
I am using CAR as an indicator of banks' capitalization.
thank you all for taking time out to reply to my question.
Dear Arun
thanks for the prompt reply
so the inflation adjusted growth for stock prices would be:
stock price growth - inflation rate
correct me if I am wrong
Hi,
stock price directly has no interpretation, it is completely irrelevant. Stock return (stock price growth) has an interpretation. However, it reflects primarily how well is bank doing. If you have two banks, and both of them are trusted equally, just on is more profitable than other, then the stock price of the more profitable bank will be growing more. Therefore, stock price growth is not a good measure of bank trust.
I would consider using Google searches. Of course, it is not directly measure of bank trust. However, is Google searches for particular bank suddenly increase, it could be an indication that public is concerned about that bank.
Dear Peter
Thanks for your reply
I see your point and completely agree that stock price reflects bank's profitability. perhaps, this could be my base point in arguing that profitable banks are more trusted than less profitable banks. However, this again is not solid enough as dividends policy comes in and also affects the bank's stock price.
problem is, even with my initial thought on (Deposit / Total Assets) to measure confidence, bank deposits are insured which weakens the argument that depositors deposit their funds in bank (x) because they trust it .
so as you can see, I am in a bit of a dilemma
Dear Arun
thanks for the contribution, I will try that and see how reasonable results are
in all cases, I probably need to justify these measurement gaps using the literature, and need to support the argument I make, whatever that may be.
I wouldn´t rule out considering using Google searches as Peter suggested, also look for complaints from customers data.
Dear Carlos
thanks for the reply and for the point you made
the problem is that such data maybe difficult to obtain in general, and specifically for the GCC region.
One other possible measure (if you can get the data) that gets at the heart of the problem are uninsured deposits. If you can find the amount of deposits that are above and beyond insured levels, then you can scale this by total assets (or total liabilities) to get an idea of public trust. If this ratio is zero or very low, then depositors are not very confident in the bank's ability to pay them back while a high ratio (controlling for the size of the bank) can suggest greater confidence. There are many studies that show that uninsured depositors flee a bank that they view as weak or might be taken over by a regulator. If this variable is not available, I would look for any other variable that can proxy for uninsured debt such as "Other Borrowed Money" that is short-term in nature (e.g., maturing in less than one year).
The suggestion of Michael S. Pagano is really good. You probably could not get a better measure than the one he is suggesting.
By the way, the World Values Index contains a question about confidence in banks. have a look at the web page and the countries covered...
is it necessary to put institutions like world bank or Central banks in reference for dissertation?
Bretton Woods institutions belong to the banking machinery. Central banks should police private banks, in theory. A confident banking machinery is built upon law and order, i.e the client receives the invested money. This quality difference can be measured; a good bank returns 1$ for 1 $; a better bank ...
- Badges
- Science topic
- Similar topics
- Methodology
- Research Methodology
- Research Papers