Working Paper: NBER ID: w18077
Authors: Thomas Philippon
Abstract: 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.
Keywords: financial intermediation; cost of intermediation; financial services; macro finance; historical analysis
JEL Codes: E21; G21; N22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| income of financial intermediaries (G20) | production of financial services (G20) |
| adjustments for borrower quality (G21) | overall cost of intermediation (G00) |
| unit cost of intermediation (G21) | borrowing rates (G21) |
| unit cost of intermediation (G21) | lending rates (G21) |
| advancements in information technology (L86) | average intermediation costs (G00) |