WP4: Financial Services Indicators
· To develop a range of indicators which measure the performance of the financial services sector and linkages to economic activity in other sectors.
· To analyze the impact of financial systems on competition and growth.
(Full details of the workpackage can be found in the description of work)
Evaluation of current practices
WP4 will begin with a critical evaluation of current bank output measurement practices; alternative estimates of output at current prices (FISIM) that account for the risky nature of bank assets and liabilities; and improved volume indicators that better account for the nature of bank services. It will then compile and compare a range of financial system performance indicators, including bank efficiency estimates, indicators of the linkages between the financial sector and non-financial industries, such as reliance on external finance, indicators of competition in banking and bank risk measures based on both balance sheets and market valuations.
Development of new indicators
With the banking sector prominently featuring in policy circles, it is more important than ever to understand developments within the industry as well as the industry’s importance for economic growth. The financial system in general performs many useful functions, like reducing information asymmetry and facilitating transactions, but bank output as currently measured in the national accounts is not well-suited for understanding how well the industry performs these functions. WP4 will propose a number of indicators that are better geared towards this task. Financial quantity indicators, such as the credit to GDP ratio, that are often used to analyze the effect of finance on growth may be misleading. The financial crisis has shown that in the US many loans were made without sufficient screening and monitoring. We will therefore propose a range of indicators to measure the quality of the financial system.
The workpackage will also include analytical studies using these indicators to investigate the impact of the financial system on output and productivity growth in non-financial industries, the role of competition and risk-taking in both financial and non-financial industries and the role of allocative efficiency across firms within industries as a channel for this impact.
New indicators of the integration of banking within Europe
Finally, WP4 will consider new indicators of the integration of banking within Europe, such as the extent of interest rate convergence and cross-border lending and cross-border ownership ties.
Outputs of the workpackage