A few additional comments on the data set that we use and the data transformations that we apply are in order. The set of countries consists of a reasonable mix of developed and emerging market economies with a satisfactory north/south and continental representation. The initial cross-sectional dimension consisted of 65 countries, but due to the lack of largely GDP and GDP Deflator data, it was necessary to exclude countries that did not have GDP related data available for a long enough period.

There were further occasional data gaps that were interpolated with a linear interpolation method to keep the size of the sample as large as possible. These were occasional gaps in the lending and deposit rates of some countries, and very rarely also in the credit series. For EU countries, we have converted the relevant variables and the exchange rate to eurodenominated values prior to the 1<sup>_st_</sup> of January 1999, where the official EU conversion rates were used.<sup>22</sup> Although the real GDP data were marked as seasonally adjusted, it became evident from visual inspections of the series that for a handful of countries that were included in the final data set, this was in fact not the case. It was, therefore, necessary to use a seasonal filter to remove the seasonality in those GDP series. The X12-ARIMA seasonal<sup>23</sup> The number of time-series observations of each of the 49 countries that are included in the cross-section from 25 observations for to 118 observations for ranges Bulgaria up France. Evidently, having less than 40 observations for the time-series dimension is far from optimal, nonetheless, we chose to leave as many cross-sections in the final data set as possible. A brief summary of the number of time-series observations of the individual countries is as follows: there are only 5 countries with less than 40 observations, there are 21 countries with 100 observations or more and the remaining countries have between 40 and 92 time-series observations.

The regressor variables intended to capture the cross sectional variation in the GDP, GDP Deflator and speed of adjustment coefficients were taken from the FinStats and Financial Sector Development Indicators of Al-Hussainy _et al._ (2010) and Beck _et al._ (2000). The economic development indicators are GDP per capita as a measure of economic development, the foreign trade to GDP ratio as a measure of an economy’s openness (both were obtained from the World Bank Central Database), the Kaufmann _et al._ (2010) overall public governance quality indicator, the degree of integration in prudential, business conduct and overall financial sector supervision of Melecky and Podpiera (2012), a central bank political and economic independence indicator, and an indicator for previous financial crisis experience (also from Melecky and Podpiera, 2012). A list of the final set of economic, financial and institutional development indicators that we used is provided in Table 3.

> 22See http://ec.europa.eu/economy ~~f~~ inance/euro/adoption/conversion/index ~~e~~ n.htm.

> 23Details regarding the computation of the filter are available from the Census Bureau’s website available at: http://www.census.gov/srd/www/x12a/.

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