This paper studies whether compliance with the Basel Core Principles for effective banking supervision (BCPs) is associated with bank soundness. Using data for over 3000 banks in 86 countries, we find that neither the overall index of BCP compliance nor its individual components are robustly associated with bank risk measured by individual bank Z-scores. We also fail to find a relationship between BCP compliance and systemic risk measured by a system-wide Z-score.

We examine empirically the existence of speculative bubbles in U.S. stock prices and, by building on West's procedure, propose direct and computationally simple tests of the “nobubble” hypothesis. These tests are likely to be close to their nominal size in small samples and to have small sample power against a wide class of bubbles including those orthogonal to the dividend process. We apply the tests to long-term annual U.S. stock market data for the 1871–1981 and 1871–1988 periods. Contrary to West, we do not reject the “no-bubble” hypothesis. We offer an explanation as to the cause of discrepancy between the two results.

This paper presents recent research on access to finance by small and medium-size enterprises (SMEs). SMEs form a large part of private sector in many developed and developing countries. While cross-country research sheds doubt on a causal link between SMEs and economic development, there is substantial evidence that small firms face larger growth constraints and have less access to formal sources of external finance, potentially explaining the lack of SMEs’ contribution to growth. Financial and institutional development helps alleviate SMEs’ growth constraints and increase their access to external finance and thus levels the playing field between firms of different sizes. Specific financing tools such as leasing and factoring can be useful in facilitating greater access to finance even in the absence of well-developed institutions, as can systems of credit information sharing and a more competitive banking structure.

How different are Islamic banks from conventional banks? Does the recent crisis justify a closer look at the Sharia-compliant business model for banking? When comparing conventional and Islamic banks, controlling for time-variant country-fixed effects, we find few significant differences in business orientation. There is evidence however, that Islamic banks are less cost-effective, but have a higher intermediation ratio, higher asset quality and are better capitalized. We also find large cross-country variation in the differences between conventional and Islamic banks as well as across Islamic banks of different sizes. Furthermore, we find that Islamic banks are better capitalized, have higher asset quality and are less likely to disintermediate during crises. The better stock performance of listed Islamic banks during the recent crisis is also due to their higher capitalization and better asset quality.<br/><br/>Highlights<br/><br/>► We compare conventional and Islamic banks across 22 countries with both bank types. ► Islamic banks are less efficient, but intermediate more, especially during crises. ► During crises, Islamic banks are better capitalized, with lower loan losses. ► Recent stock performance of Islamic banks due to more capital and lower loan losses.

Using a dataset covering about 276,998 firms across 75 countries over the period 2004–2011, this paper examines the short-run evolution of firms' capital structures following the start of the global financial crisis and its immediate aftermath, comparing the experience of already levered SMEs, large non-listed firms, and listed companies. We find that firm leverage and debt maturity declined both in advanced economies and in developing countries, even in those that did not experience a crisis. The deleveraging and maturity reduction were particularly significant for non-listed firms, including both SMEs as well as large non-listed companies. For SMEs, these effects were larger in countries with less efficient legal systems, weaker information sharing mechanisms, less developed financial sectors, and with more restrictions on bank entry. In contrast, there is weaker evidence of a significant decline in leverage and debt maturity among listed companies which are typically much larger than other firms and likely to benefit from the “spare tire” of easier access to capital market financing. Though our results are robust to many changes in sample and specification, we cannot rule out that survivorship bias and attrition could affect our estimates to some degree.

This paper is a first attempt at measuring financial sector outreach and investigating its determinants. First, we present new indicators of banking sector outreach across 99 countries, constructed from aggregate data provided by bank regulators. Second, we show that our indicators closely predict harder-to-collect micro-level statistics of household and firm use of banking services, and are associated with measures of firm financing obstacles in the expected way. Finally, we explore the association between our outreach indicators and standard determinants of financial sector depth. We find many similarities but also some differences in the determinants of outreach and depth.

We investigate whether firms’ access to external financing to fund growth differs in market-based and bank-based financial systems. Using firm-level data for 40 countries, we compute the proportion of firms in each country relying on external finance and examine how that proportion differs across financial systems. We find that the development of a country's legal system predicts access to external finance, and stock markets and the banking system affect access to external finance differently. However, we find no evidence that firms’ access to external financing is predicted by several proxies for relative development of stock markets to the development of the banking system.

We examine firm debt maturity in 30 countries during the period 1980–1991. In countries with active stock markets, large firms have more long-term debt. Stock market activity is not correlated with debt levels of small firms. By contrast, in countries with a large banking sector, small firms have less short-term debt and their debt is of longer maturity. Variation in the size of the banking sector is uncorrelated with the capital structures of large firms. Government subsidies to industry are positively related and inflation is negatively related to the use of long-term debt. We also find evidence of maturity matching.

Deteriorating public finances around the world raise doubts about countries’ abilities to bail out their largest banks. For an international sample of banks, this paper investigates the impact of bank size and government deficits on bank stock prices and CDS spreads. We find that a bank’s market-to-book value is negatively related to the size of its liabilities-to-GDP ratio, especially in countries running large public deficits. CDS spreads appear to decrease with stronger public finances. These results suggest that systemically important banks can increase their value by downsizing or splitting up, especially if they are located in countries with weak public finances. We document that banks’ average liabilities-to-GDP ratio reached a peak in 2007 before a significant drop in 2008, which could reflect these private incentives to downsize.