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This study aims to identify policies that influence the development of financial institutions as measured across three dimensions: depth, efficiency, and stability. Applying the concept of the financial possibility frontier, developed by Beck & Feyen (2013) and formalized by Barajas et al (2013a), we determine key policy variables affecting the gap between actual levels of development and benchmarks predicted by structural variables. Our dynamic panel estimation shows that inflation, trade openness, institutional quality, and banking crises significantly affect financial development. Our analysis also helps identify potential complementarities and trade-offs for policy makers, based on the effect of the policy variables across the different dimensions of financial development.

Banks and Banking --- Econometrics --- Finance: General --- Demography --- Financial Markets and the Macroeconomy --- Monetary Policy --- Economic Development: Financial Markets --- Saving and Capital Investment --- Corporate Finance and Governance --- Estimation --- Financial Crises --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Demographic Economics: General --- Econometrics & economic statistics --- Finance --- Economic & financial crises & disasters --- Banking --- Population & demography --- Estimation techniques --- Financial sector development --- Banking crises --- Commercial banks --- Population and demographics --- Econometric analysis --- Financial markets --- Financial crises --- Financial institutions --- Econometric models --- Financial services industry --- Banks and banking --- Population --- United States