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The Value Of Risk: Measuring The Service Output Of U.S. Commercial Banks

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  • SUSANTO BASU
  • ROBERT INKLAAR
  • J. CHRISTINA WANG

Abstract

Rather than charging direct fees, banks often charge implicitly for their services via interest spreads. As a result, much of bank output has to be estimated indirectly. In contrast to current statistical practice, dynamic optimizing models of banks argue that compensation for bearing systematic risk is not part of bank output. We apply these models and find that between 1997 and 2007, in the U.S. National Accounts, on average, bank output is overestimated by 21 percent and GDP is overestimated by 0.3 percent. Moreover, compared with current methods, our new estimates imply more plausible estimates of the share of capital in income and the return on fixed capital.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 49 (2011)
Issue (Month): 1 (01)
Pages: 226-245

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Handle: RePEc:bla:ecinqu:v:49:y:2011:i:1:p:226-245

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References

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  9. Dennis J Fixler & Marshall B Reinsdorf & Shaunda Villones, 2010. "Measuring the services of commercial banks in the NIPA," IFC Bulletins chapters, in: Bank for International Settlements (ed.), The IFC's contribution to the 57th ISI Session, Durban, August 2009, volume 33, pages 346-349 Bank for International Settlements.
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Cited by:
  1. Robert Inklaar & J. Christina Wang, 2011. "Real output of bank services: what counts is what banks do, not what they own," Working Papers 11-1, Federal Reserve Bank of Boston.
  2. Susanto Basu, 2009. "Comment on "Incorporating Financial Services in a Consumer Price Index"," NBER Chapters, in: Price Index Concepts and Measurement, pages 266-271 National Bureau of Economic Research, Inc.
  3. Charles, Steindel, 2010. "The Financial Crisis and the Measurement of Financial Sector Activity," MPRA Paper 27240, University Library of Munich, Germany.
  4. Everett, Mary & McNeill, Joe & Phelan, Gillian, 2013. "Measuring the Value Added of the Financial Sector in Ireland," Quarterly Bulletin Articles, Central Bank of Ireland, pages 85-98, April.
  5. , & Diewert, Erwin, 2014. "The Treatment of Financial Transactions in the SNA: A User Cost Approach," Economics working papers erwin_diewert-2014-8, Vancouver School of Economics, revised 20 Feb 2014.
  6. Aoki, Shuhei, 2012. "A simple accounting framework for the effect of resource misallocation on aggregate productivity," Journal of the Japanese and International Economies, Elsevier, vol. 26(4), pages 473-494.
  7. Barry P. Bosworth & Jack E. Triplett, 2007. "The Early 21st Century U.S. Productivity Expansion is Still in Services," International Productivity Monitor, Centre for the Study of Living Standards, vol. 14, pages 3-19, Spring.
  8. Martín-Oliver, Alfredo & Ruano, Sonia & Salas-Fumás, Vicente, 2013. "Why high productivity growth of banks preceded the financial crisis," Journal of Financial Intermediation, Elsevier, vol. 22(4), pages 688-712.
  9. Diego Prior & Emili Tortosa-Ausina & Manuel Illueca & Mª Pilar Garcí­a-Alcober, 2014. "Earnings quality and performance in the banking industry: A profit frontier approach," Working Papers 2014/11, Economics Department, Universitat Jaume I, Castellón (Spain).
  10. Antonio Colangelo & Reimund Mink, 2010. "Bank services: some reflections on the treatment of default risk and term premium," IFC Bulletins chapters, in: Bank for International Settlements (ed.), The IFC's contribution to the 57th ISI Session, Durban, August 2009, volume 33, pages 339-345 Bank for International Settlements.
  11. Mª Pilar García-Alcober & Emili Tortosa-Ausina & Diego Prior & Manuel Illueca, 2014. "Cost and revenue efficiency in Spanish banking: What distributions show," Working Papers 2014/12, Economics Department, Universitat Jaume I, Castellón (Spain).
  12. Satoru Hagino & Katsurako Sonoda, 2010. "Treatment of risk in the estimation of FISIM," IFC Bulletins chapters, in: Bank for International Settlements (ed.), The IFC's contribution to the 57th ISI Session, Durban, August 2009, volume 33, pages 334-338 Bank for International Settlements.

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