Measuring diversity - Geographical diversity and regional banks in Europe / GDivEU

As a lesson from the financial crisis, diversity is recommended for the European banking systems by scholars and the European Commission alike  (Ayadi et al. 2009, 2010, Schmidt 2009, Haldane and May 2011, Liikanen et al. 2012, Schmidt 2018, Kotz and Schäfer 2018, Gischer and Ilchmann 2018). At the same time, however, there are indications that the banking and financial market regulation of the European Union (EU) will lead to the homogenisation of banking systems rather than promoting diversity (Ferri and Neuberger 2018). Diversity in banking has numerous dimensions, e.g. the legal form or ownership structure, the business model, the size, or the geographical concentration of banks (Ayadi et al. 2009, 2010, 2011, Michie and Oughton 2013, Gärtner 2013). A challenge in assessing the diversity of the banking system is the lack of complete and valid diversity indicators that are available for all countries over a long time period. For example, Ayadi et al. (2019) compute business model diversity from hand-compiled balance sheet data and therefore does not take into account all banks in Europe. As a result, smaller banks are missing. Because of their cumulative importance, neglecting small and regional banks is an insufficient representation of Europe’s banking system (Gärtner and Flögel 2013). The research project aims to use the list of the monetary financial institutions of the European Central Bank (ECB) for the determination of valid geographical diversity indicators.

Objective of the project

Using the ECB's list of monetary financial institutions (List of MFIs), which lists all banks in the EU, geographical diversity can be determined for the EU. As part of banking supervision, the list records all MFIs in the EU, is updated daily and freely available. It therefore provides a complete, reliable and up-to-date list of all EU MFIs. Despite its availability, the “List of MFIs” has only rarely been used to determine geographical diversity (Michie and Oughton 2013, Flögel and Gärtner 2018a). The aim of the project is to put this directory in value and to describe the development of geographical diversity in banking for Europe as well as to develop and test indicators for measuring geographical diversity. To do this, it is first necessary to prepare and locate the data record. In the following, various indicators are to be calculated from the list, which determine the geographical diversity of the banks in the EU countries. Finally, the explanatory power of these indicators will be exploratively tested and further research will be outlined.