Question 1.2:

Antitrust authorities worry that firms in concentrated industries "exploit" the consumers of their products and services due to a lack of competitive pressure. Is this graphical evidence on the U.S. banking industry consistent with this concern? What more detailed information might buttress your argument?

A broad array of specialized non-bank financial institutions participate in financial markets. Like commercial banks, these non-banks (insurance companies, pension funds, mutual funds, and so on) channel funds from savers into loans for individuals, businesses, and governments.

In the past 30 years, there have been significant changes in the amount of funding that non-banks provide in credit markets. The figures below provide graphical evidence on these changes based on data from the Federal Reserve System.

Figure 1 shows the growth in credit across six important categories of non-bank between 1997 and 2006 (normalized to 100 in 1997:Q1).

Figure 2 shows the equivalent growth rates for the years between 2007 and 2015 (normalized to 100 in 2007:Q1).

Question 2.1:

Based on the graphical evidence, which type of non-bank experienced the fastest rate of expansion of credit provision (in percentage terms) from 1997 until 2006? Which type of non-bank experienced the sharpest decline between 2007 and 2015?

Question 2.2:

"Non-banks can complement banks by providing funding in loan markets. Therefore, greater non-bank participation will always lower the cost and improve the availability of loans."

Do you agree or disagree with this statement? Explain.