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Has the U.S. Finance Industry Become Less Efficient? On the Theory and Measurement of Financial Intermediation

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  • Thomas Philippon

I provide a quantitative interpretation of financial intermediation in the U.S. over the past 130 years. Measuring separately the cost of intermediation and the production of financial services, I find that: (i) the quantity of intermediation varies a lot over time; (ii) intermediation is produced under constant returns to scale; (iii) the annual cost of intermediation is around 2% of outstanding assets; (iv) adjustments for borrowers' quality are quantitatively important; and (v) the unit cost of intermediation has increased over the past 30 years.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18077.

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Date of creation: May 2012
Publication status: published as 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 1408-38, April.
Handle: RePEc:nbr:nberwo:18077
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