I started by gathering FRED data for Total Financial Assets:
|Graph #1: Total Financial Assets for Seven Sectors|
I combined the two nonfinancial business sectors into one line, and the two government sectors into one line. That reduced the confusion to five lines. I kept the same colors, as much as possible. Where I deleted a line, I deleted the yellow line, as on Graph #1 they are difficult to distinguish.
Then I divided them all by GDP to "normalize" them, as the IMF PDF describes.
|Graph #2: Total Financial Assets Relative to GDP (for Five Sectors)|
Looks to me like finance is the sector that has grown excessively.
Other indicators of financial size and depth that could be usefully examined include ratios of broad money to GDP (M2 to GDP), private sector credit to GDP (DCP to GDP), and ratio of bank deposits to GDP (deposits/GDP).
M2 to GDP is easy:
But I'm not sure how good a measure this is of the size of finance. M2 money divided by GDP is the inverse of M2 Velocity, FRED's M2V. In the notes on that series at FRED, we read:
The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy.
The FRED notes also say
Comparing the velocities of M1 and M2 provides some insight into how quickly the economy is spending and how quickly it is saving.
"How quickly it is saving" might be a measure of the growth of finance. Doesn't seem very straightforward, to me. Here, this graph shows M2 Velocity relative to M1 Velocity:
which, when we invert and multiply, looks like this
and when we cancel out things that cancel, we get
So the graph shows M1 declining relative to M2 until the crisis -- except for that early 1990s increase in M1 that I notice all the time.
I guess you could say that if M1 declines relative to M2, it's because of an increase in savings. And that increase might be a way to measure the size of finance. But you'd have to say, then, that finance had been growing consistently until the crisis -- except perhaps during that early 1990s blip.
Private sector credit to GDP, using "Total Credit to Private Non-Financial Sector" (copyright BIS) relative to GDP:
That one goes up also. Plus, it excludes credit to the private financial sector, which, as we might assume after seeing Graph #2, increased even more rapidly than credit to the private non-financial sector.
So, yeah, again, finance grew faster than GDP, consistently, for a long time.
Finally, the ratio of bank deposits to GDP. I don't know which deposits they mean. Here are a few:
I didn't bother to show them relative to GDP. Interesting that they all run pretty flat except the purple line. That's savings deposits, the purple one. That's money that's stuck in finance.