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Components of U.S. financial sector growth, 1950-2013

Author

Listed:
  • Samuel Antill
  • Asani Sarkar
  • David Hou

Abstract

The U.S. financial sector grew steadily as a share of the total business sector from 1959 until the recent financial crisis, when the trend reversed. In this article, the authors develop measures based on firm-level data to estimate the size of the financial sector and its subsectors relative to the total business (financial and nonfinancial) sector over time. The analysis further sheds light on how these size measures are affected by a firm?s choice of financing (whether public or private), firm size, industry type, use of leverage, and regulation. The authors find that the relative size of finance is smaller when only publicly listed firms are included. Financial firms are more prevalent among large firms than among small firms, with the relative size of finance being two to three times bigger in the large firm sample than in the small firm sample within any period and for any measure. While large financial firms on average grew only at moderately higher rates than smaller financial firms, large traditional banks grew substantially faster than their smaller counterparts. Shadow banks increased rapidly in size at the expense of traditional banks, becoming a significant portion of the financial sector in the mid-1990s and peaking just before the crisis. Overall, the results show that both the pre-crisis growth and the crisis-era decline mainly occurred in opaque, complex, and less-regulated subsectors of finance.

Suggested Citation

  • Samuel Antill & Asani Sarkar & David Hou, 2014. "Components of U.S. financial sector growth, 1950-2013," Economic Policy Review, Federal Reserve Bank of New York, pages 59-83.
  • Handle: RePEc:fip:fednep:00011
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    References listed on IDEAS

    as
    1. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 717-737.
    2. Jonathan B. Berk & Richard C. Green, 2004. "Mutual Fund Flows and Performance in Rational Markets," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1269-1295, December.
    3. Mark Gertler & John H. Boyd, 1994. "Are banks dead? Or are the reports greatly exaggerated?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue sum, pages 2-23.
    4. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    firm size; asset management; shadow banks; commercial banks; leverage; Financial sector size;

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G01 - Financial Economics - - General - - - Financial Crises
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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