The Growth of Modern Finance

53 Pages Posted: 16 Oct 2012  

Robin M. Greenwood

Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

David S. Scharfstein

Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

Date Written: July 1, 2012

Abstract

The U.S. financial services industry grew from 4.9% of GDP in 1980 to 7.9% of GDP in 2007. A sizeable portion of the growth can be explained by rising asset management fees, which in turn were driven by increases in the valuation of tradable assets, particularly equity. Another important factor was growth in fees associated with an expansion in household credit, particularly fees associated with residential mortgages. This expansion was itself fueled by the development of non-bank credit intermediation (or “shadow banking”). We offer a preliminary assessment of whether the growth of active asset management, household credit, and shadow banking – the main areas of growth in the financial sector – has been socially beneficial.

Keywords: Financial services, fees, asset management

JEL Classification: G1, G18

Suggested Citation

Greenwood, Robin M. and Scharfstein, David S., The Growth of Modern Finance (July 1, 2012). Available at SSRN: https://ssrn.com/abstract=2162179 or http://dx.doi.org/10.2139/ssrn.2162179

Robin M. Greenwood (Contact Author)

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6979 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

David S. Scharfstein

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-496-5067 (Phone)
617-496-8443 (Fax)

HOME PAGE: http://www.people.hbs.edu/dscharfstein/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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