THE IMPACT OF THE 2008 GLOBAL CRISIS ON THE EFFICIENCY OF THE FINANCIAL SYSTEM

Abstract

ct This study examines the impact of the 2008 Global Crisis on the efficiency of the financial institutions around the world. We focus on 203 countries and examine nine efficiency measures which include net interest margin, lendingdeposit spread, non-interest income, overhead costs, return on assets, return on equity, cost to income ratio, credit to government and state-owned enterprises, and stock market turnover ratio. We document how each of these efficiency measures had changed during the run-up to the crisis, during the crisis, and after the crisis. Our results show that, during the run-up to the crisis, there was no sign of an upcoming crisis in terms of these efficiency measures. During the crisis period, both return on assets and return on equity went down significantly. There was no change in the other variables during this period. During the post-crisis period, we find that return on assets and return on equity continued to go down. Also, cost to income ratio went up significantly post-crisis. On the other hand, credit to government and state-owned enterprises went up significantly post-crisis. There was no significant change in the other variables. These findings should help policymakers to devise strategies that would protect their country’s financial system.

Keywords

• financial system
• efficiency
• interest margin
• credit
• turnover ratio
• global crisis
• financial crises