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Are Banks Dead? Or Are the Reports Greatly Exaggerated?

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  • John H. Boyd
  • Mark Gertler

Abstract

This 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 Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5045.

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Date of creation: Feb 1995
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Publication status: published as Federal Reserve Bank of Minneapolis Quarterly Review, Vol. 18, no. 3 (Summer 1994): 2-23.
Handle: RePEc:nbr:nberwo:5045

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  1. Joe Peek & Eric Rosengren, 1991. "The capital crunch: neither a borrower nor a lender be," Working Papers, Federal Reserve Bank of Boston 91-4, Federal Reserve Bank of Boston.
  2. Ben S. Bernanke & Cara S. Lown, 1991. "The Credit Crunch," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 205-248.
  3. Christina D. Romer & David H. Romer, 1993. "Credit channel or credit actions? an interpretation of the postwar transmission mechanism," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, pages 71-149.
  4. Dennis J. Fixler & Kimberly D. Zieschang, 1992. "User Costs, Shadow Prices, and the Real Output of Banks," NBER Chapters, in: Output Measurement in the Service Sectors, pages 219-243 National Bureau of Economic Research, Inc.
  5. Robert N. McCauley & Rama Seth, 1992. "Foreign bank credit to U.S. corporations: the implications of offshore loans," Quarterly Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Spr, pages 52-65.
  6. Allen N. Berger & David B. Humphrey, 1990. "Measurement and efficiency issues in commercial banking," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 151, Board of Governors of the Federal Reserve System (U.S.).
  7. Frederick T. Furlong, 1991. "Can bank capital regulation work? research revisited," Economic Review, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Sum, pages 32-33.
  8. Boyd, John H. & Runkle, David E., 1993. "Size and performance of banking firms : Testing the predictions of theory," Journal of Monetary Economics, Elsevier, Elsevier, vol. 31(1), pages 47-67, February.
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