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The value of risk: measuring the service output of U. S. commercial banks

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Author Info
Susanto Basu
Robert Inklaar
J. Christina Wang

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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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Paper provided by Federal Reserve Bank of Boston in its series Working Papers with number 08-4.

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Date of creation: 2008
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Handle: RePEc:fip:fedbwp:08-4

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Keywords: Banks and banking ; Risk management;

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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.:
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  2. Dunn, Kenneth B & McConnell, John J, 1981. "Valuation of GNMA Mortgage-Backed Securities," Journal of Finance, American Finance Association, vol. 36(3), pages 599-616, June. [Downloadable!] (restricted)
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  4. Erwin Diewert, 2008. "What Is To Be Done for Better productivity Measurement," International Productivity Monitor, Centre for the Study of Living Standards, vol. 16, pages 40-52, Spring. [Downloadable!]
  5. Barnett, William A., 1978. "The user cost of money," Economics Letters, Elsevier, vol. 1(2), pages 145-149. [Downloadable!] (restricted)
  6. Charles Calomiris & Joseph Mason, 2004. "Credit Card Securitization and Regulatory Arbitrage," Journal of Financial Services Research, Springer, vol. 26(1), pages 5-27, August. [Downloadable!] (restricted)
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  7. Fama, Eugene F., 1985. "What's different about banks?," Journal of Monetary Economics, Elsevier, vol. 15(1), pages 29-39, January. [Downloadable!] (restricted)
  8. Diewert, W E, 1974. "Intertemporal Consumer Theory and the Demand for Durables," Econometrica, Econometric Society, vol. 42(3), pages 497-516, May. [Downloadable!] (restricted)
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  10. Carol Corrado & Charles Hulten & Daniel Sichel, 2006. "Intangible capital and economic growth," Finance and Economics Discussion Series 2006-24, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  11. Robert A. Jarrow & David Lando & Fan Yu, 2005. "Default Risk And Diversification: Theory And Empirical Implications," Mathematical Finance, Blackwell Publishing, vol. 15(1), pages 1-26. [Downloadable!] (restricted)
  12. J. Christina Wang, 2003. "Loanable funds, risk, and bank service output," Working Papers 03-4, Federal Reserve Bank of Boston. [Downloadable!]
  13. Robert Inklaar & Marcel P. Timmer & Bart van Ark, 2008. "Market services productivity across Europe and the US," Economic Policy, CEPR, CES, MSH, vol. 23, pages 139-194, 01. [Downloadable!] (restricted)
  14. Kau, James B, et al, 1992. "A Generalized Valuation Model for Fixed-Rate Residential Mortgages," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(3), pages 279-99, August. [Downloadable!] (restricted)
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  1. 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. [Downloadable!]
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