Banking synergy and intermediation efficiency: evidence from developing economies

We develop a transparent CES-based index of banking institutional synergy for emerging and developing economies that combines market structure, creditor protection, and credit information infrastructure and penalizes unbalanced pillar improvements. Using an unbalanced 2004–2019 panel, we estimate two-way fixed-effects models with standard macro controls and a Mundlak within–between decomposition. Within-country variation in synergy is limited in this short panel, consistent with slow-moving institutional pillars. Cross-country differences are informative: higher average synergy is associated with lower non-performing loan ratios and higher net banking surplus, alongside systematic differences in overhead costs and liquidity buffers.