Long-run Unit Cost of Financial Intermediation in Japan

Author Name GUNJI Hiroshi (Daito Bunka University) / ONO Arito (Chuo University) / SHIZUME Masato (Waseda University) / UCHIDA Hirofumi (Kobe University) / YASUDA Yukihiro (Hitotsubashi University)
Creation Date/NO. September 2021 21-J-048
Research Project Study Group on Corporate Finance and Firm Dynamics
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We estimate the long-run unit cost of financial intermediation in Japan. Philippon (2015) and Bazot (2018a) respectively estimate the unit cost of financial intermediation in the US and Europe as the ratio of the financial industry income (numerator) to the financial industry output (denominator). To measure the financial industry income, we add several elements that are not included as the financial industry's value added in the System of National Accounts (SNA): net interest income and dividends from assets and liabilities other than loans and deposits, capital gains or losses from banks' securities portfolios, and credit costs associated with non-performing loans. We find that the unit cost of financial intermediation in Japan exhibits secular decline, which is not observed in the US and some European countries.