Has Finance Grown Too Big?

Has Finance Grown Too Big?: On The Social Efficiency of the Shadow Banking System

Karagiannis, V.

Storm, S.T.H. (mentor)

Technology, Policy and Management

Values Technology and Innovation

2016-08-25

Over the previous thirty-five years the financial sector of the high-income (OECD) countries has considerably increased in size, importance and sheer complexity. A social efficient financial system is crucial to a stable, productive and innovative market economy. In such a system, the economic welfare is enhanced as banks and financial institutions provide funding for productive investment, for research, design and development RD&D and for high-tech innovators. They also provide insurance that results in risk reduction, create sufficient amounts of useful liquidity, run an efficient payments mechanism and generate financial innovations to do all these useful things more cheaply and effectively. But decades of financial sector’s rapid growth have been taking place mostly in (what is officially called) the “shadow banking system” (SBS) – the unregulated and opaque part of our banking system where most of the (often) speculative financial engineering has taken place and where the financial imbalances were built up which have led to the financial crisis of 2008. More specifically, the SBS is defined as the credit intermediation outside the traditional regulated banking system, involving all sources of funding apart from the, traditionally used, regular deposits. The spectacular rise of the SBS raises the important but so far under-researched question about whether and the extent to which the SBS is serving and furthering the real economy by providing adequate finance to investment and (high-tech) innovation, offering insurance and creating useful liquidity (i.e. the question about the SBS’s social efficiency). This is the main research question of this thesis project, which will use novel data sets for the OECD countries in order to empirically evaluate the social efficiency of the SBS. In particular, the contribution of the SBS to the growth of real GDP per capita and hourly labour productivity (which are two indicators of “social efficiency” often used in economic research) is assessed.

http://resolver.tudelft.nl/uuid:b1aa758f-ba26-48cd-a15a-6955a05b0655

Student theses

master thesis

(c) 2016 Karagiannis, V.