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The Value of Risk: Measuring the Service Output of U.S. Commercial Banks

  • Susanto Basu
  • Robert Inklaar
  • J. Christina Wang

Rather than charging direct fees, banks often charge implicitly for their services via interest spreads. As a result, much of bank output has to be estimated indirectly. In contrast to current statistical practice, dynamic optimizing models of banks argue that compensation for bearing systematic risk is not part of bank output. We apply these models and find that between 1997 and 2007, in the U.S. National Accounts, on average, bank output is overestimated by 21 percent and GDP is overestimated by 0.3 percent. Moreover, compared with current methods, our new estimates imply more plausible estimates of the share of capital in income and the return on fixed capital.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14615.

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Date of creation: Dec 2008
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Publication status: published as Susanto Basu & Robert Inklaar & J. Christina Wang, 2011. "The Value Of Risk: Measuring The Service Output Of U.S. Commercial Banks," Economic Inquiry, Western Economic Association International, vol. 49(1), pages 226-245, 01.
Handle: RePEc:nbr:nberwo:14615
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  10. J. Christina Wang, 2003. "Loanable funds, risk, and bank service output," Working Papers 03-4, Federal Reserve Bank of Boston.
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  13. Dennis J Fixler & Marshall B Reinsdorf & Shaunda Villones, 2010. "Measuring the services of commercial banks in the NIPA," IFC Bulletins chapters, in: Bank for International Settlements (ed.), The IFC's contribution to the 57th ISI Session, Durban, August 2009, volume 33, pages 346-349 Bank for International Settlements.
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