Are banks dead? or, are the reports greatly exaggerated?
AbstractThis paper reexamines the conventional wisdom that commercial banking is an industry in severe decline. We find that a careful reading of the evidence does not justify this conclusion. It is true that on-balance sheet assets held by commercial banks have declined as a share of total intermediary assets. But this measure overstates any drop in banking, for three reasons. First, it ignores the rapid growth in commercial banks' off-balance sheet activities. Second, it fails to take account of the substantial growth in off-shore C&I lending by foreign banks. Third, it ignores the fact that over the last several decades financial intermediation has grown rapidly relative to the rest of the economy. We find that after adjusting the measure of bank assets to account for these considerations there is no clear evidence of secular decline. To corroborate these findings, we also construct an alternative measure of the importance of banking, using data from the national income accounts. Again, we find no clear evidence of a sustained decline. At most the industry may have suffered a slight loss of market share over the last decade. But as we discuss, this loss may reflect a transitory response to a series of adverse shocks and the phasing in of new regulatory requirements, rather than the beginning of a permanent decline.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Chicago in its series Proceedings with number 25.
Date of creation: 1994
Date of revision:
Publication status: Published in Conference on Bank Structure and Competition (1994 : 30th)
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Other versions of this item:
- John H. Boyd & Mark Gertler, 1994. "Are banks dead? Or are the reports greatly exaggerated?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-23.
- John H. Boyd & Mark Gertler, 1995. "Are Banks Dead? Or Are the Reports Greatly Exaggerated?," NBER Working Papers 5045, National Bureau of Economic Research, Inc.
- John H. Boyd & Mark Gertler, 1994. "Are banks dead? or, are the reports greatly exaggerated?," Working Papers 531, Federal Reserve Bank of Minneapolis.
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- Peek, Joe & Rosengren, Eric, 1995.
"The Capital Crunch: Neither a Borrower nor a Lender Be,"
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- Frederick T. Furlong, 1991. "Can bank capital regulation work? research revisited," Economic Review, Federal Reserve Bank of San Francisco, issue Sum, pages 32-33.
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