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How good is the BankScope database? A cross-validation exercise with correction factors for market concentration measures

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  • Kaushik Bhattacharya

Abstract

The paper examines the quality of the BankScope database, by comparing results based on it to those obtained from the population-level data for India disseminated by the Reserve Bank of India. Despite good coverage and minor reporting errors in the individual reported units, strong evidence of selectivity bias in BankScope data for India is found. A major source of the selectivity bias for India is the almost total omission of Regional Rural Banks and Foreign Banks. It is shown that this selectivity bias affects estimates of all summary statistical measures and could lead users of the data to conclude that the Indian banking market is unimodal when, in reality, it is segmented and has a bimodal pattern. Kolmogorov-Smironov tests reveal that neither the distribution of the log of total assets nor that of market shares based on the BankScope data could be treated same as the corresponding population distributions for India. Despite these limitations, the paper shows that a few popularly used market concentration measures could be estimated from BankScope data accurately, provided the coverage ratio with respect to the size variable is known from alternative sources and is adequate. Coverage of about 90% with respect to the size variable is found to be sufficient for approximating population HHI. For k-bank concentration measures, accurate estimates could be obtained if, in addition, the top k banks in the population are also available in the sample. In contrast, for entropy measures, results indicate that adequate coverage with respect to both the size variable and the number of financial entities would be required.

Suggested Citation

  • Kaushik Bhattacharya, 2003. "How good is the BankScope database? A cross-validation exercise with correction factors for market concentration measures," BIS Working Papers 133, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:133
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    References listed on IDEAS

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    1. Huberto M. Ennis, 2001. "On the size distribution of banks," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 1-25.
    2. Corvoisier, Sandrine & Gropp, Reint, 2002. "Bank concentration and retail interest rates," Journal of Banking & Finance, Elsevier, vol. 26(11), pages 2155-2189, November.
    3. Eric Nauenberg & Kisalaya Basu & Harish Chand, 1997. "Hirschman-Herfindahl index determination under incomplete information," Applied Economics Letters, Taylor & Francis Journals, vol. 4(10), pages 639-642.
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    Cited by:

    1. Korte, Josef, 2013. "Catharsis - The Real Effects of Bank Insolvency and Resolution," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79938, Verein für Socialpolitik / German Economic Association.
    2. Tomáš Klinger & Petr Teply, 2014. "Modelling Interconnections in the Global Financial System in the Light of Systemic Risk," ACTA VSFS, University of Finance and Administration, vol. 8(1), pages 64-88.
    3. Tomas Pavlicek, 2014. "The Developmnet of the Self-employed Sector in the Czech Republic in the Years 2006 - 2010," ACTA VSFS, University of Finance and Administration, vol. 8(1), pages 28-46.
    4. Micco, Alejandro & Panizza, Ugo & Yanez, Monica, 2007. "Bank ownership and performance. Does politics matter?," Journal of Banking & Finance, Elsevier, vol. 31(1), pages 219-241, January.
    5. Jaroslav Vostatek, 2014. "Tax Treatment of Public and Private Pensions," ACTA VSFS, University of Finance and Administration, vol. 8(1), pages 7-27.
    6. Dániel Homolya, 2009. "The impact of the capital requirements for operational risk in the Hungarian banking system," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 4(2), pages 6-13, July.
    7. Wayne Passmore & Alexander H. von Hafften, 2017. "Are Basel's Capital Surcharges for Global Systemically Important Banks Too Small?," Finance and Economics Discussion Series 2017-021, Board of Governors of the Federal Reserve System (U.S.).
    8. David Tison, 2014. "Impact of Non-cooperative Oligopoly of the Banking System on Its Pro-cyclicality in the Czech Republic," ACTA VSFS, University of Finance and Administration, vol. 8(1), pages 47-63.
    9. Chun-Yu Ho, 2010. "Deregulation, competition and consumer welfare in a banking market: evidence from Hong Kong," Journal of Regulatory Economics, Springer, vol. 37(1), pages 70-97, February.
    10. Sirajo Aliyu & Rosylin Mohd Yusof, 2016. "Profitability and Cost Efficiency of Islamic Banks: A Panel Analysis of Some Selected Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 6(4), pages 1736-1743.
    11. Gambacorta, Leonardo, 2005. "Inside the bank lending channel," European Economic Review, Elsevier, vol. 49(7), pages 1737-1759, October.
    12. Choudhry Tanveer Shehzad & Jakob de Haan & Bert Scholtens, 2009. "Growth and Earnings Persistence in Banking Firms: A Dynamic Panel Investigation," CESifo Working Paper Series 2772, CESifo Group Munich.
    13. Korte, Josef, 2015. "Catharsis—The real effects of bank insolvency and resolution," Journal of Financial Stability, Elsevier, vol. 16(C), pages 213-231.
    14. Johan Mathisen & Thierry D. Buchs, 2005. "Competition and Efficiency in Banking; Behavioral Evidence from Ghana," IMF Working Papers 05/17, International Monetary Fund.
    15. Mike Mariathasan & Ouarda Merrouche, 2012. "Recapitalization, credit and liquidity," Economic Policy, CEPR;CES;MSH, vol. 27(72), pages 603-646, October.
    16. Ugo Panizza & Alejandro Micco & Mónica Yañez, 2006. "Propiedad y desempeño de la banca. ¿Importa la política?," Research Department Publications 4468, Inter-American Development Bank, Research Department.
    17. Paolo Coccorese, 2014. "Estimating the Lerner index for the banking industry: a stochastic frontier approach," Applied Financial Economics, Taylor & Francis Journals, vol. 24(2), pages 73-88, January.
    18. T. Duprey & M. Lé, 2014. "Bank Capital Adjustment Process and Aggregate Lending," Working papers 499, Banque de France.
    19. S.M. Ali Abbas & Raphael Espinoza, 2016. "Why Do Banks in Developing Countries Hold Government Securities?," UCL SSEES Economics and Business working paper series 2016-1, UCL School of Slavonic and East European Studies (SSEES).
    20. Moch, Nils, 2013. "Competition in fragmented markets: New evidence from the German banking industry in the light of the subprime crisis," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2908-2919.
    21. De Haas, Ralph & Ferreira, Daniel & Taci, Anita, 2010. "What determines the composition of banks' loan portfolios? Evidence from transition countries," Journal of Banking & Finance, Elsevier, vol. 34(2), pages 388-398, February.

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