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Financial Consumption and the Cost of Finance: Measuring Financial Efficiency in Europe (1950–2007)

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  • Guillaume Bazot

Abstract

This paper proposes a quantitative evaluation of the financial sector from 1950 to 2007 in Germany, France, the United Kingdom, and Europe more broadly. Three main facts are revealed. First, the ratio of domestic financial intermediaries’ income to GDP increases continuously in all the countries over the period, even during the 1990s and the 2000s, contrary to the national accountant evaluation. Second, comparing financial income to the quantity of intermediated assets, the analysis shows that the unit cost of financial intermediation does not decrease over the period, except in France. In addition, because European unit cost decreased after the 1990s whereas it remained stable in the United States, the unit cost increased more in the United States than in Europe over the whole period. Third, an econometric investigation shows that (i) the increase in nominal interest rates during the 1970s and the 1980s is positively correlated to unit cost and (ii) the joint development of financial wealth management, credit intermediation, and the securities industry during the 1990s and the 2000s coincides with higher unit cost values.

Suggested Citation

  • Guillaume Bazot, 2018. "Financial Consumption and the Cost of Finance: Measuring Financial Efficiency in Europe (1950–2007)," Journal of the European Economic Association, European Economic Association, vol. 16(1), pages 123-160.
  • Handle: RePEc:oup:jeurec:v:16:y:2018:i:1:p:123-160.
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    File URL: http://hdl.handle.net/10.1093/jeea/jvx008
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    1. Economics vs bankers
      by chris in Stumbling and Mumbling on 2016-05-10 17:42:52

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    Cited by:

    1. Jorge Padilla, 2020. "Big Tech “banks”, financial stability and regulation," Revista de Estabilidad Financiera, Banco de España, issue Spring.
    2. Böhm, Michael & Metzger, Daniel & Strömberg, Per Johan, 2018. ""Since you're so rich, you must be really smart": Talent and the Finance Wage Premium," CEPR Discussion Papers 12711, C.E.P.R. Discussion Papers.
    3. Raphael Auer, 2019. "Embedded supervision: how to build regulation into blockchain finance," BIS Working Papers 811, Bank for International Settlements.
    4. -, 2018. "Regional digital market: Strategic aspects," Documentos de Proyectos 43633, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    5. Guillaume Bazot, 2014. "Has finance become too expensive? An estimation of the unit cost of financial intermediation in Europe, 1951-2007," PSE-Ecole d'économie de Paris (Postprint) halshs-02527018, HAL.
    6. Guillaume Bazot, 2014. "Has finance become too expensive? An estimation of the unit cost of financial intermediation in Europe, 1951-2007," Institut des Politiques Publiques halshs-02527018, HAL.
    7. Monetary Authority of Singapore, 2020. "Balancing the risks and rewards of fintech developments," BIS Papers chapters, in: Bank for International Settlements (ed.), Financial market development, monetary policy and financial stability in emerging market economies, volume 113, pages 279-291, Bank for International Settlements.
    8. Philippon, Thomas, 2016. "The FinTech Opportunity," CEPR Discussion Papers 11409, C.E.P.R. Discussion Papers.
    9. Thomas Philippon, 2015. "Has the US Finance Industry Become Less Efficient? On the Theory and Measurement of Financial Intermediation," American Economic Review, American Economic Association, vol. 105(4), pages 1408-1438, April.
    10. Olivier Godechot, 2015. "Financialization Is Marketization! : A Study on the Respective Impact of Various Dimensions of Financialization on the Increase in Global Inequality," Sciences Po publications 15/3, Sciences Po.
    11. Kirill Shakhnov, . "The Allocation of Talent: Finance versus Entrepreneurship," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.
    12. Nolan, Brian & Richiardi, Matteo & Valenzuela, Luis, 2018. "The Drivers of Inequality in Rich Countries," MPRA Paper 89806, University Library of Munich, Germany.
    13. Bank for International Settlements, 2018. "Structural changes in banking after the crisis," CGFS Papers, Bank for International Settlements, number 60, June.
    14. Cynthia Weiyi Cai, 2018. "Disruption of financial intermediation by FinTech: a review on crowdfunding and blockchain," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(4), pages 965-992, December.
    15. Thomas Philippon, 2020. "On fintech and financial inclusion," BIS Working Papers 841, Bank for International Settlements.
    16. Boris Cournède & Oliver Denk & Peter Hoeller, 2015. "Finance and Inclusive Growth," OECD Economic Policy Papers 14, OECD Publishing.
    17. Guillaume Bazot, 2014. "Has finance become too expensive? An estimation of the unit cost of financial intermediation in Europe, 1951-2007," Post-Print halshs-02527018, HAL.
    18. Thomas Philippon, 2014. "Efficiency and Benefit-Cost Analysis of the Financial System," The Journal of Legal Studies, University of Chicago Press, vol. 43(S2), pages 107-120.
    19. Olena Havrylchyk & Marianne Verdier, 2018. "The Financial Intermediation Role of the P2P Lending Platforms," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 60(1), pages 115-130, March.
    20. Meyer Aaron & Francisco Rivadeneyra & Samantha Sohal, 2017. "Fintech: Is This Time Different? A Framework for Assessing Risks and Opportunities for Central Banks," Discussion Papers 17-10, Bank of Canada.
    21. Dömötör, Barbara & Ölvedi, Tímea, 2021. "A személyközi hitelezés létjogosultsága a pénzügyi közvetítésben [The relevance of peer-to-peer lending in financial intermediation]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 773-793.
    22. Ben Lockwood & Erez Yerushalmi, 2019. "How should payment services be taxed?," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 53(1), pages 21-47, June.
    23. Nolan, Brian & Richiardi, Matteo & Valenzuela, Luis, 2018. "The Drivers of Inequality in Rich Countries," INET Oxford Working Papers 2018-15, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.
    24. Thomas Philippon, 2019. "On Fintech and Financial Inclusion," NBER Working Papers 26330, National Bureau of Economic Research, Inc.
    25. Hamid Boustanifar & Everett Grant & Ariell Reshef, 2016. "Wages and human capital in finance: international evidence, 1970-2005," Globalization Institute Working Papers 266, Federal Reserve Bank of Dallas.

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