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The Evolution of Financial Structure in the G-7 Over 1997–2010

Published online by Cambridge University Press:  26 March 2020

E. Philip Davis
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Abstract

As background for this special issue of the Review, this article provides an overview of recent developments in financial structure in the major industrial countries using national flow of funds balance sheet data. We focus in particular on changes in the size and composition of the balance sheet for the major sectors — households, companies, general government, foreign and financial as well as banks and institutional investors separately. Two recent subperiods are distinguished, namely the ‘great moderation’ of high growth and low inflation from roughly 1997–2006 and then the crisis period 2007–10. We discern elements of convergence — notably in corporate leverage — but also some continuing contrasts — such as household debt — between market- and bank-dominated financial systems, while highlighting that short-run changes arising from the conjuncture may blur longer-term trends in financial structure. Looking ahead, the data highlight common challenges from public and household debt, albeit to an extent that varies markedly between countries. Bank deleveraging and recapitalisation appear slow, while a subsector including shadow banks continues to grow except in the US. There are contrasts between France and Italy on the one hand and Germany on the other which underline the vulnerability of the former in the ongoing Euro Area crisis.

Keywords

Financial structureflow of fundsGreat Moderationsub-prime crisisG-7
Type
Research Articles
Information
National Institute Economic Review , Volume 221 , July 2012 , pp. R11 - R22
Copyright
Copyright © 2012 National Institute of Economic and Social Research

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Footnotes

∗

National Institute of Economic and Social Research. E-mail: [email protected]. I thank Olivier de Bandt, Adeline Bachellerie and Franck Sédillot for help in obtaining data, and an anonymous referee for helpful comments.

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