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

Thomas Philippon

NBER Working Paper No. 18077
Issued in May 2012
NBER Program(s):   AP   CF   EFG   PR

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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Acknowledgments

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