“Do Financial Systems Converge ? New
Evidence from Household Financial Assets
in Selected OECD Countries”
Giuseppe Bruno and Riccardo De Bonis
Bank of Italy
OECD, Working Party on Financial Statistics, 13-14 October 2008
The views expressed are those of the authors only and do not involve the responsibility of the Bank of Italy
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Motivation
•There is a traditional great interest in comparing financial
systems.
•Nowadays such interest has gained new emphasis due to the
financial crisis !
•Long term series on financial accounts provide excellent
statistics to study differences and analogies among financial
systems.
•Delegates of the WPFS may remember the joint project (Oecd,
Pioneer Investment, some national central banks) to estimate
national financial accounts from the Eighties.
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Motivation (follows)
• Goal of this paper: to study convergence of financial systems
through the lenses of household asset allocation
• According to the Oxford Dictionary convergence is “the
tendency to become similar while adapting to the same
environment”.
• In our framework the “same environment” might be, inter alia,
globalization and financial integration.
• The idea is that household asset allocation, relative to disposable
income, provides information on the characteristics of financial
systems.
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Motivation (follows)
• We collected and estimated data for nine countries: the UK,
the US, Japan, Canada, Germany, France, Spain, Austria and
Italy. Data are available since 1980.
• Household financial assets are split into four broad categories:
-currency and deposits;
-securities other than shares;
-shares and other equity;
-insurance technical reserves.
• We study convergence of the ratios of each product to
household disposable income.
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Motivation (follows)
• Important caveat
There is not a theory of financial systems
convergence, nor of an optimum financial
system.
We offer some empirical exercises, without
theoretical a-priori or implications.
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Outline
1. Convergence methods
2. Our country database
3. Results
4. Conclusions
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1. Convergence methods: β and 
convergence
a) β convergence
There is beta-convergence if poor economies tend to grow faster
than rich countries.
β < 0 means that “the lower you start the quicker you go”
b)  convergence
There is -convergence when the dispersion of economic
indicators falls over time across groups of economies.
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1. Convergence methods (follows)
β convergence is a necessary but not a sufficient condition
for -convergence.

2
t 1
 1    t2   2
2
At this stage we measured absolute convergence. We also
carried out one conditional convergence exercise.
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2. Our country panel database
Ratio (logs) of financial assets to disposable income in nine countries
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2. Our country panel database
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3. Results
Summary of the absolute β convergence results
β convergence is found for total financial assets, insurance
products, shares and other equity.
Financial deepening, crisis of the public pension schemes and
growing role of the Stock Exchanges are the main explanations.
β convergence is not clear for currency and deposits, and
securities other than shares.
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3. Results
Example of a β convergence regression
β−convergence
for household total financial assets
Dependent variable: Total financial assets average growth rate
Method
OLS
Fixed effects
Random effects
Constant
0.17875
0.24644
0.18366
5.83
5.41
5.89
-0.07646
-0.15240
-0.08196
-2.42
-3.08
-2.57
R2
0.12
0.35
0.13
S.E. regression
0.08
0.08
0.08
N. obs.
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Cross sections
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Log(yt-1)
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3. Results
An exercise of conditional β convergence
•Among the variables available for conditional β convergence we
have checked the effect of the country’s commercial law structure.
•Countries in our panel are split in two groups: common law
(US,UK and Canada) and civil law (the remaining countries).
•The estimation confirms the results of the absolute convergence
exercise. The coefficient for the dummy indicating the country legal
origin is never significantly different from zero. Commercial law did
not affect the trend of currency and deposits and securities other
than shares.
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3. Results
 convergence results
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4. Conclusions
β and  convergence are found for total financial assets,
insurance products and shares and other equity.
Mixed results, often no convergence, are obtained for
securities other than shares and currency and deposits.
In a nutshell, financial globalization and integration, and
growth of capital markets have common trends but national
peculiarities of households’ financial instruments persist.
Examples are the importance of securities in Italy, deposits in
Japan and decreasing role of banking deposits in the US.
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