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Are Banks Dead? Or Are the Reports Greatly Exaggerated?

John H. Boyd and Mark Gertler ()

No 5045, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper reexamines the conventional wisdom that commercial banking is an industry in severe decline. We find that a careful reading of the evidence does not justify this conclusion. It is true that on-balance sheet assets held by commercial banks have declined as a share of total intermediary assets. But this measure overstates any drop in banking, for three reasons. First, it ignores the rapid growth in commercial banks' off-balance sheet activities. Second, it fails to take account of the substantial growth in off-shore C&I lending by foreign banks. Third, it ignores the fact that over the last several decades financial intermediation has grown rapidly relative to the rest of the economy. We find that after adjusting the measure of bank assets to account for these considerations there is no clear evidence of secular decline. To corroborate these findings, we also construct an alternative measure of the importance of banking, using data from the national income accounts. Again, we find no clear evidence of a sustained decline. At most the industry may have suffered a slight loss of market share over the last decade. But as we discuss, this loss may reflect a transitory response to a series of adverse shocks and the phasing in of new regulatory requirements, rather than the beginning of a permanent decline.

Date: 1995-02
Note: CF ME
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Published as Federal Reserve Bank of Minneapolis Quarterly Review, Vol. 18, no. 3 (Summer 1994): 2-23.
Published as John H. Boyd & Mark Gertler, 1994. "Are banks dead? or, are the reports greatly exaggerated?," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 85-117.

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Journal Article: Are banks dead? Or are the reports greatly exaggerated? (1994) Downloads
Working Paper: Are banks dead? or, are the reports greatly exaggerated? (1994)
Working Paper: Are banks dead? or, are the reports greatly exaggerated? (1994) Downloads
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