Long-Term Trends in Intra-Financial Sector Lending in the U.S. 1950-2012

This paper examines the evolution of intra-financial sector lending in the United States, 1950- 2012, presenting estimates constructed from the Federal Reserve's Flow of Funds Accounts. We establish a number of stylized facts concerning the growth and composition of claims between financial institutions. We find that intra-financial sector lending as a share of total financial sector lending appears to have grown nearly five-fold since the 1950s. After comprising a tenth of all lending throughout 1950-1980, by 2011 lending between financial institutions accounted for nearly half of all financial sector lending. The stock of intra-financial assets has followed a similar trend. These grew rapidly during the 1980s and 1990s and presently account for nearly 30 percent of all financial sector assets. Although the growth of intra-financial assets accelerated after 1980, the fastest increase took place between 1991 and the bursting of the dotcom bubble in 2001, increasing from 15 to 25 percent of total financial sector assets. In the run up to the financial crisis of 2007-2008, the growth of intra-financial lending was concentrated in assets highly implicated in the genesis of the crisis, suggesting that this growth may have contributed to the crisis. This growth in intra-financial lending also raises questions about the contribution of the financial sector to the real economy: in the years before the financial crisis only 40 percent of financial lending was to the real economy. In recent years, we are witnessing similarly large shares of intra-financial lending