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Are banks dead? Or are the reports greatly exaggerated?

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  • John H. Boyd
  • Mark Gertler

Abstract

This article reexamines the conventional wisdom that commercial banking is in severe decline. A careful reading of the evidence does not support it. True, on-balance sheet assets held by commercial banks have declined as a share of total intermediary assets. But this measure ignores the substantial growth in banks' off-balance sheet activities, in off-shore lending by foreign banks, and in the size of the financial intermediation sector. Adjusted for these considerations, the bank-assets measure shows no clear evidence of secular decline. Neither does an alternative measure, constructed using data from the national income accounts. At most, banking may have suffered a slight loss of market share lately. But this loss is a temporary response to a series of adverse shocks rather than the start of a permanent decline.

Suggested Citation

  • 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.
  • Handle: RePEc:fip:fedmqr:y:1994:i:sum:p:2-23:n:v.18no.3
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    References listed on IDEAS

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    1. 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.
    2. Peek, Joe & Rosengren, Eric, 1995. "The Capital Crunch: Neither a Borrower nor a Lender Be," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(3), pages 625-638, August.
    3. Frederick T. Furlong, 1991. "Can bank capital regulation work? research revisited," Economic Review, Federal Reserve Bank of San Francisco, issue Sum, pages 32-33.
    4. Christina D. Romer & David 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, pages 71-149.
    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, issue Spr, pages 52-65.
    6. Boyd, John H. & Runkle, David E., 1993. "Size and performance of banking firms : Testing the predictions of theory," Journal of Monetary Economics, Elsevier, vol. 31(1), pages 47-67, February.
    7. 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.
    8. Allen N. Berger & David B. Humphrey, 1992. "Measurement and Efficiency Issues in Commercial Banking," NBER Chapters,in: Output Measurement in the Service Sectors, pages 245-300 National Bureau of Economic Research, Inc.
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    Keywords

    Banks and banking;

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