How Big Is Too Big? What Should Finance Do and How Much Should It Be Cut Down to Size?

This project studies a broad array of financial institutions to discover the impacts of financial regulations on functionally efficient finance, productivity growth, and income distribution.

The financial sector has grown significantly, raising the question of whether it is too big or engaged in socially inefficient activities. Yet there are no clear metrics to measure the social usefulness of financial activities to help us assess its appropriate size and nature. This project builds on James Tobin’s concept of “functional efficiency” to study a broad array of financial institutions by developing new micro and macro data to shed light on these key questions regarding the size of financial sector and its broader impact on society.