Òscar Jordà, Alan Taylor, Moritz Schularick, 12 October 2014

The Global Crisis prompted Lord Adair Turner to ask if the growth of the financial sector has been socially useful, catalysing an ongoing debate. This column turns to economic history to investigate whether the financial sector is too big. New long-run, disaggregated data on banks’ balance sheets show that mortgage lending by banks has been the driving force behind the financialisation of advanced economies. Real estate lending booms are chiefly responsible for financial crises and weak recoveries.

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