Components of U.S. Financial Sector Growth, 1950-2013

27 Pages Posted: 8 Apr 2014 Last revised: 28 Nov 2014

See all articles by Samuel Antill

Samuel Antill

Stanford Graduate School of Business

David Hou

Federal Reserve Banks - Federal Reserve Bank of New York

Asani Sarkar

Federal Reserve Bank of New York

Date Written: March 31, 2014

Abstract

The U.S. financial sector grew steadily as a share of the total business sector from 1959 until the recent financial crisis, when the trend reversed. In this article, the authors develop measures based on firm-level data to estimate the size of the financial sector and its subsectors relative to the total business (financial and nonfinancial) sector over time. The analysis further sheds light on how these size measures are affected by a firm’s choice of financing (whether public or private), firm size, industry type, use of leverage, and regulation. The authors find that the relative size of finance is smaller when only publicly listed firms are included. Financial firms are more prevalent among large firms than among small firms, with the relative size of finance being two to three times bigger in the large firm sample than in the small firm sample within any period and for any measure. While large financial firms on average grew only at moderately higher rates than smaller financial firms, large traditional banks grew substantially faster than their smaller counterparts. Shadow banks increased rapidly in size at the expense of traditional banks, becoming a significant portion of the financial sector in the mid-1990s and peaking just before the crisis. Overall, the results show that both the pre-crisis growth and the crisis-era decline mainly occurred in opaque, complex, and less-regulated subsectors of finance.

Keywords: financial sector size, shadow banks, commercial banks, asset management, firm size, leverage

JEL Classification: G01, G18, G20, G10

Suggested Citation

Antill, Samuel and Hou, David and Sarkar, Asani, Components of U.S. Financial Sector Growth, 1950-2013 (March 31, 2014). Economic Policy Review, Volume 20, Number 2, March 2014, Available at SSRN: https://ssrn.com/abstract=2421317

Samuel Antill

Stanford Graduate School of Business ( email )

Stanford, CA 94305
United States

David Hou

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Asani Sarkar (Contact Author)

Federal Reserve Bank of New York ( email )

Research Department
33 Liberty Street
New York, NY 10045
United States
212-720-8943 (Phone)
212-720-1582 (Fax)

HOME PAGE: http://www.newyorkfed.org/research/economists/sarkar/pub.html

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