Why do we need a financial sector?

  • Wouter den Haan, 24 October 2011

    This column launches a new Vox Debate titled “Why do we need a financial sector and how much should we pay for it”. The column argues standard measures of the financial sector’s economic contribution overestimate its true value to a modern economy. As such, regulation that makes it more difficult for the sector to perform some activities is not necessarily a bad thing.

  • Charles A.E. Goodhart, 31 October 2011

    As protestors occupy Wall Street and financial centres around the world, among the grievances are “socially useless” investment banks. This column argues, however, that investment banking is critical to any effective economy – the idea that policymakers can safeguard retail banking alone is not only tragically mistaken but also horribly dangerous.

  • Alexander Popov, Frank Smets, 03 November 2011

    Well-developed financial systems play a crucial role in stimulating growth but are associated with more frequent financial shocks and higher macroeconomic risk, as the financial crisis of 2007–09 reminded us. This column argues that the goal of financial regulation must be to reduce systemic risk without eliminating the financial sector’s contribution to long-term economic growth.

  • Wouter den Haan, Vincent Sterk, 08 November 2011

    Financial institutions played a leading role in the global crisis, and policymakers are under pressure to do something about them. This column argues that before any draconian measures are passed, we need to be reminded of the benefits of the financial sector and the innovation it provides.

  • Andrew G Haldane, Vasileios Madouros, 22 November 2011

    While few would argue that the financial crisis has not brought the real economy down with it, there is considerably less clarity about what the positive contribution of the financial sector is during normal times. This lead commentary in the current Vox debate on the issue focuses on the value-added of risk and government subsidies in national accounting, and makes an important distinction between risk-taking and risk management.

  • Thomas Philippon, 02 December 2011

    Has the financial industry become less efficient? This lead commentary in the Vox debate on the financial sector argues that, despite all of its fast computers and credit derivatives, the current financial system is no better at transferring funds from savers to borrowers than the financial system of 1910.

  • Christina Wang, 08 December 2011

    The financial system is like an organ in the body of the economy. But is it the heart or the appendix? This column, part of the Vox Debate on whether we need a financial sector, argues that we should measure the value banks create through their management of risk, not simply their bearing of risk. Under this measure, banks may well be less valuable to the economy.

  • Gunther Capelle-Blancard, University Paris 1 Panthéon-Sorbonne & Cepii, 10 November 2011

    In line with Thorsten Beck’s post, I would like to emphasize the issue related to the measurement of financial deepening. The crisis has seriously altered the mindset on the supposed positive impact of finance on growth. The crisis also called into question the commonly accepted measures to assess the growth of the financial sector. In the finance-growth literature, the size of the financial...

  • Wouter DenHaan , London School of Economics, 05 November 2011

    To stimulate the debate a bit and possibly provide some guidance I have come up with the following set of questions. Is providing financing for small firms (through bank loans or private equity) the most important role of the financial sector? Is the financial sector just needed to smooth life-time consumption? How important are the provision of complex securities to make the world safer? Would...

  • , , 31 October 2011

      This is an important and relevant topic as many observers have started to doubt the contribution of finance to growth after the current crisis. And there are two inter-related questions in this respect – what concept of the financial sector and how to measure these concepts?   On the one hand, there is the academic literature on focusing on the relationship between financial intermediation and...

  • ugo panizza, unctad, 26 October 2011

    Readers may be interested in a VOXEU post in which we discuss the optimal size of the financial sector. We conclude that: ....the marginal effect of financial development on output growth becomes negative when credit to the private sector surpasses 110% of GDP. This result is surprisingly consistent across different types of estimators (simple regressions and semi-parametric estimations) and data...