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

20 Pages Posted: 12 Jan 2011

See all articles by Susanto Basu

Susanto Basu

Boston College, College of Arts and Sciences, Department of Economics; National Bureau of Economic Research (NBER)

Robert Inklaar

University of Groningen - Department of Economics

J. Christina Wang

Federal Reserve Bank of Boston

Multiple version iconThere are 3 versions of this paper

Date Written: January 10, 2011

Abstract

Banks often charge implicitly for their services via interest spreads, instead of explicit fees. Much of bank output thus 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 in the U.S. National Accounts between 1997 and 2007, bank output was overestimated by 21% and gross domestic product (GDP) by 33%. Compared with current methods, our new estimates imply more plausible estimates of the income share of capital and the return on fixed capital of the banking industry.

JEL Classification: E01, E44, O47

Suggested Citation

Basu, Susanto and Inklaar, Robert and Wang, J. Christina, The Value of Risk: Measuring the Service Output of U.S. Commercial Banks (January 10, 2011). Economic Inquiry, Vol. 49, Issue 1, pp. 226-245, 2011, Available at SSRN: https://ssrn.com/abstract=1738127 or http://dx.doi.org/10.1111/j.1465-7295.2010.00304.x

Susanto Basu (Contact Author)

Boston College, College of Arts and Sciences, Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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Robert Inklaar

University of Groningen - Department of Economics ( email )

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J. Christina Wang

Federal Reserve Bank of Boston ( email )

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Boston, MA 02210
United States

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