Service output of bank holding companies in the 1990s and the role of risk
This paper constructs a new measure of output for Bank Holding Companies (BHCs) over the period 1986 to 1999. This flow measure of bank value added follows from a unified model of bank operation that integrates theories of production, financial intermediation, and asset pricing. The primary contribution of the model is to demonstrate how one should account for risk when measuring the value added of bank services. One key implication is that the risk-related return on the funds banks borrow and lend should be excluded from the nominal value of the services banks produce, since the model recognizes that these funds are simply a particular kind of intermediate input. The new output measure is thus conceptually different from the existing ones even in terms of the nominal value. This paper focuses on deriving the nominal value of bank services according to the new measure, since no adequate data are available for compiling more accurate price indices for the services. Comparisons show that the new measure differs noticeably from the two existing ones. First, it is about 25% smaller than the measure stipulated in System of National Accounts 1993, and it is two orders of magnitude smaller than the measure used in virtually all the empirical studies of individual banking organizations. Second, the new measure exhibits quite different time series properties--in particular, it is more cyclical. This new model-based measure of bank output carries significant implications for the measurement of banking output in the National Income Accounts, providing the theoretical basis for a new approach that is consistent with basic principles. This paper can be regarded as a first attempt to resolve the host of data limitations on the implementation of the new measure. Better data and more accurate price indices for bank services will be needed before the new measure can become practical for National Income Accounting.
|Date of creation:||2003|
|Contact details of provider:|| Postal: 600 Atlantic Avenue, Boston, Massachusetts 02210|
Web page: http://www.bos.frb.org/
More information through EDIRC
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Berger, Allen N. & Humphrey, David B., 1997.
"Efficiency of financial institutions: International survey and directions for future research,"
European Journal of Operational Research,
Elsevier, vol. 98(2), pages 175-212, April.
- Allen N. Berger & David B. Humphrey, 1997. "Efficiency of financial institutions: international survey and directions for future research," Finance and Economics Discussion Series 1997-11, Board of Governors of the Federal Reserve System (U.S.).
- Allen N. Berger & David B. Humphrey, 1997. "Efficiency of Financial Institutions: International Survey and Directions for Future Research," Center for Financial Institutions Working Papers 97-05, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Ross, Stephen A., 1976. "The arbitrage theory of capital asset pricing," Journal of Economic Theory, Elsevier, vol. 13(3), pages 341-360, December.
- Stephen A. Ross, "undated". "The Arbitrage Theory of Capital Asset Pricing," Rodney L. White Center for Financial Research Working Papers 02-73, Wharton School Rodney L. White Center for Financial Research.
- Stephen A. Ross, "undated". "The Arbitrage Theory of Capital Asset Pricing," Rodney L. White Center for Financial Research Working Papers 2-73, Wharton School Rodney L. White Center for Financial Research.
- Rogers, Kevin E., 1998. "Nontraditional activities and the efficiency of US commercial banks," Journal of Banking & Finance, Elsevier, vol. 22(4), pages 467-482, May.
- Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-921, September.
- Ben S. Bernanke & Alan S. Blinder, 1989. "The federal funds rate and the channels of monetary transmission," Working Papers 89-10, Federal Reserve Bank of Philadelphia.
- Ben Bernanke, 1990. "The Federal Funds Rate and the Channels of Monetary Transnission," NBER Working Papers 3487, National Bureau of Economic Research, Inc.
- George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
- Hancock, Diana, 1985. "The Financial Firm: Production with Monetary and Nonmonetary Goods," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 859-880, October.
- J. Christina Wang, 2003. "Loanable funds, risk, and bank service output," Working Papers 03-4, Federal Reserve Bank of Boston. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:fip:fedbwp:03-6. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Catherine Spozio)
If references are entirely missing, you can add them using this form.