The European Financial System in Limelight

Abstract

Efficient use of resources depends on better allocation through financial systems. Development of financial systems can be measured through the performance of banks, financial markets and insurance companies. This paper identifies several key attributes to measure the level of financial development in Europe using data from 1990 to 2011. First, an index is constructed by employing the method of Principal Component Analysis to measure the strength of financial systems in European countries. Second, based on relative raking a comparison is made for better interpretation of results in European countries. The top five countries include Switzerland, United Kingdom, Netherlands, Spain and Germany. The results of this study can be helpful to assess the relative strength of European economies and frame future policies to promote efficiency of financial systems