The role of institutional quality in bank deposit growth In European transition economies

Abstract

This study aims to investigate the influence of institutional quality on bank deposit growth besides bank-specific and macroeconomic variables in European transition economies. Generalized method of moments (GMM) is applied to analyze the panel data which is collected from the Global Financial Development and World Development Indicators of world Bank over the period 2000–2017. The results show that institutional quality strengthens the positive effect of deposit mobilization on bank deposit growth. Specifically, rule of law is found to have a positive correlation with bank deposit. In addition, macroeconomic factors including broad money supply (M2) and economic growth (rGDP) are also significant factors in bank deposit growth. However, bank-specific factors comprising bank efficiency and bank branch expansion do not influence bank deposit growth. Accordingly, the results of the study propose a core message that transition countries should recognize institutional quality indicators since these major indicators could promote and strengthen the resilience of bank funding.