Why did high productivity growth of banks precede the financial crisis?
AbstractThe observed high levels of banks’ operating efficiency, profi ts and market values in the years before the financial crisis raise reasonable doubts about the information content of conventional performance measures for the accurate assessment of the efficiency of banking intermediation. In this paper we estimate the productivity of individual Spanish banks and the industry’s productivity growth over time using the methodology of Olley and Pakes (1996) and Levinsohn and Petrin (2003), which controls for simultaneity bias. We then examine the contributions of two sets of factors to productivity growth: banking practices that have been signalled as the proximate causes of the crisis, and technical progress in the industry. We obtain that more than two thirds of the estimated productivity growth in the years 2000-2007 is attributable to practices such as the expansion of the housing market, the high recourse to securitization and short-term fi nance, and the leveraging of banks’ balance sheets. The remaining 2.8% cumulative annual growth rate is our estimate for the technical progress in the industry, similar to the estimated rate in the period 1993-2000.
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Bibliographic InfoPaper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 1239.
Length: 46 pages
Date of creation: Dec 2012
Date of revision:
productivity of banks; financial stability production function; IT capital; simultaneity bias;
Find related papers by JEL classification:
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-12-22 (All new papers)
- NEP-CBA-2012-12-22 (Central Banking)
- NEP-EFF-2012-12-22 (Efficiency & Productivity)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rajnish Mehra & Facundo Piguillem & Edward C. Prescott, 2011.
"Costly financial intermediation in neoclassical growth theory,"
Econometric Society, vol. 2(1), pages 1-36, 03.
- Rajnish Mehra & Facundo Piguillem & Edward C. Prescott, 2008. "Costly Financial Intermediation in Neoclassical Growth Theory," NBER Working Papers 14351, National Bureau of Economic Research, Inc.
- Rajnish Mehra & Facundo Piguillem & Edward C. Prescott, 2011. "Costly financial intermediation in neoclassical growth theory," Working Papers 685, Federal Reserve Bank of Minneapolis.
- Galo Nuño & Pedro Tedde & Alessio Moro, 2011. "Money dynamics with multiple banks of issue: evidence from Spain 1856-1874," Banco de Espaï¿½a Working Papers 1119, Banco de Espa�a.
- Aitor Lacuesta & Sergio Puente & Ernesto Villanueva, 2011. "The schooling response to a sustained increase in low-skill wages: evidence from Spain 1989-2009," Banco de Espaï¿½a Working Papers 1208, Banco de Espa�a.
- Alfredo Martin-Oliver & Sonia Ruano & Vicente Salas-Fumas, 2013. "Banks' Equity Capital Frictions, Capital Ratios, and Interest Rates: Evidence from Spanish Banks," International Journal of Central Banking, International Journal of Central Banking, vol. 9(1), pages 183-225, March.
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