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Why did high productivity growth of banks precede the financial crisis?

  • Alfredo Martín-Oliver

    ()

    (Universitat de les Illes Balears)

  • Sonia Ruano

    (Banco de España)

  • Vicente Salas-Fumás

    (Universidad de Zaragoza)

The observed high levels of banks’ operating efficiency, profi ts and market values in the years before the financial crisis raise reasonable doubts about the information content of conventional performance measures for the accurate assessment of the efficiency of banking intermediation. In this paper we estimate the productivity of individual Spanish banks and the industry’s productivity growth over time using the methodology of Olley and Pakes (1996) and Levinsohn and Petrin (2003), which controls for simultaneity bias. We then examine the contributions of two sets of factors to productivity growth: banking practices that have been signalled as the proximate causes of the crisis, and technical progress in the industry. We obtain that more than two thirds of the estimated productivity growth in the years 2000-2007 is attributable to practices such as the expansion of the housing market, the high recourse to securitization and short-term fi nance, and the leveraging of banks’ balance sheets. The remaining 2.8% cumulative annual growth rate is our estimate for the technical progress in the industry, similar to the estimated rate in the period 1993-2000.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/12/Fich/dt1239e.pdf
File Function: First version, december 2012
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Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 1239.

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Length: 46 pages
Date of creation: Dec 2012
Date of revision:
Handle: RePEc:bde:wpaper:1239
Contact details of provider: Web page: http://www.bde.es/
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  1. Aitor Lacuesta & Sergio Puente & Ernesto Villanueva, 2011. "The schooling response to a sustained increase in low-skill wages: evidence from Spain 1989-2009," Banco de Espa�a Working Papers 1208, Banco de Espa�a.
  2. Rajnish Mehra & Facundo Piguillem & Edward C. Prescott, 2011. "Costly financial intermediation in neoclassical growth theory," Quantitative Economics, Econometric Society, vol. 2(1), pages 1-36, 03.
  3. Galo Nuño & Pedro Tedde & Alessio Moro, 2011. "Money dynamics with multiple banks of issue: evidence from Spain 1856-1874," Banco de Espa�a Working Papers 1119, Banco de Espa�a.
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