Structure over Scale: Bank Credit vs. Market Capitalization in the Evolution of Financial System Balance

The study examines the evolution of financial system structural orientation as a variable reflecting the relative weight of bank credit and market capitalization. The study aims to assess the long-term evolution of financial system structural orientation, its convergence patterns, and its response to major economic shocks. The empirical analysis covers 20 countries over the period 2001–2024. The study combines an analysis of cross-country differences and the temporal variability of structural orientation with β- and σ-convergence tests, complemented by an analysis of structural deviations and post-shock adjustment during the 2008 financial crisis and the COVID-19 pandemic. The results reveal substantial heterogeneity in the structural trajectories of financial systems and differences in the stability of these trajectories. At the same time, a tendency toward convergence in structural orientation is observed in the absence of statistically significant evidence of a reduction in cross-country dispersion. The shock analysis demonstrates differences not only in the magnitude of structural changes but also in post-shock adjustment and recovery. The findings contribute to a dynamic understanding of the relationship between the banking and market-based components of financial systems and support the need to assess this relationship beyond the boundaries of static country classification.