Post crisis non-bank financial institutions productivity change: Efficiency increase or technological progress?

Abstract

Non-Bank Financial Institutions (NBFIs) play an important dual role in a financial system. Traditionally, NBFIs comprise of a mixed bag of institutions that includes all financial institutions not classified as commercial banks. They complement the role of commercial banks, filling in financial intermediation gaps by offering a range of products and services that they offered. Nevertheless, they also compete with commercial banks, forcing the latter to be more efficient and responsive to their customers needs. Most NBFIs are also actively involved in the securities markets and in the mobilization and allocation of long-term financial resources. The state of development of NBFIs is usually a good indicator to the state of development of a country's financial system as a whole. Given the substantial task of the NBFIs, it is worth raising the issue of its role. In particular, since Gerschenkron (1962) classic study emphasizing the role of the banking systems in the economic development of Germany, France and Italy in the nineteenth century, it may appear that the need for NBFIs is largely redundant in the specific circumstances of the developing economies. There are two main reasons why the existence of NBFIs is important; one reason concerns the economic development and the other reason relates to financial stability. As NBFIs are established to avoid tight prudential controls applicable to banks, they play a prominent role in financial system failures. Increased competition from NBFIs could also result in banks increasing their lending volumes, by lowering their lending standards to maintain market shares. This may result in a rapid lending growth, which could indirectly result in a financial crisis. © 2009 Physica-Verlag Heidelberg.