Doing Business Indicator strength of legal rights index, which tracks changes related to secured transactions and insolvency every year. The index ranges from 0 to 12 for the period 2013-14 and from 0 to 10 during 2005-12, with higher scores indicating that collateral and bankruptcy laws are better designed to expand access to credit. In order to mitigate the differences in the Doing Business methodology, we use a factor of 1.2 to scale the 2005-12 raw data values. A negative sign is expected as stronger creditor rights are expected to translate into lower spreads.

- **Information environment** : more credit information sharing on borrowers lowers the cost of screening and monitoring, reduces adverse selection and reduces loan losses, thus contributing to lower bank spreads. We proxy the quality of the information environment by the Doing Business Indicator depth of credit information index, which measures rules and practices affecting the coverage, scope and accessibility of credit information available through either a credit bureau or a credit registry. The index ranges from 0 to 8 during 2013-14 and from 0 to 6 during 2005-12. For similar reasons discussed above for creditor rights, we scale the 2005-12 value by a factor of 4/3. Higher values indicate the availability of more credit information, from either a credit bureau or a credit registry, to facilitate lending decisions. A negative sign is expected on the coefficient of this variable.

- **Contract enforcement:** the enforceability of creditor rights is important in determining the premium that banks will demand on their intermediation activity. We proxy contract enforcement by the Doing Business Indicator recovery rate, which is recorded as cents on the dollar recovered by secured creditors through judicial reorganization, liquidation or debt enforcement (foreclosure or receivership) proceedings. Higher recovery rates are expected to reduce bank margins; hence, we expect a negative coefficient for this variable.

Lastly, we include one broad measure of economic development in our analysis:

- **GDP per capita** : real per capita income measured in thousands of constant 2010 US dollars. More advanced economic development tends to associate with deeper and more efficient financial systems, which are conducive to lower net interest margins. A negative sign for this variable is therefore expected. In a modeling extension, this variable is also used as a simple proxy for testing heterogeneous effects of bank-level, macroeconomic, structural, and institutional variables along different stages of economic and financial development.

Bank-level variables are trimmed at the 1 percent level while macroeconomic variables are winsorized at 0.5 percent to eliminate multiple outliers, implausible negative values and extreme outliers. Table 1 presents descriptive statistics while Table 2 summarizes the correlation matrix.

# **3. Accounting decomposition of intermediation spreads**

We begin our analysis by presenting a breakdown of the net interest margin into its components: operating costs minus noninterest income, loan loss provisions, taxes and net profit. The average net interest margins (weighted by total assets) for the period 2005-14 by country are presented in Table 3, column 2. Columns 3-6 report its components as a share of the net interest margin while columns 7-11 present accounting ratios as in equation (3) above, i.e., components scaled by total assets. Figure 5 8