J. Christina Wang

THE VALUE OF RISK : MEASURING THE SERVICE OUTPUT OF U.S. COMMERCIAL BANKS

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.(This abstract was borrowed from another version of this item.)

Real Output of Bank Services: What Counts is What Banks Do, Not What They Own

We argue that models of banks as processors of information and transactions imply a quantity measure of bank output based on transaction counts instead of balances of loans and deposits. Compiling new and comparable real output measures for the USA and a range of European countries, we show that counts‐based output series exhibit substantially different growth patterns than balances‐based output series. Since the US official statistics rely on counts while European statistics rely on balances, this implies that comparisons of bank output growth between Europe and the USA are biased.

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

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.