Big Banks and Macroeconomic Outcomes: Theory and Cross-Country Evidence of Granularity

Franziska Bremus, Claudia Buch, Katheryn Russ and Monika Schnitzer ()

No 1348, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: Does the mere presence of big banks affect macroeconomic outcomes? In this paper, we develop a theory of granularity (Gabaix, 2011) for the banking sector, introducing Bertrand competition and heterogeneous banks charging variable markups. Using this framework, we show conditions under which idiosyncratic shocks to bank lending can generate aggregate fluctuations in the credit supply when the banking sector is highly concentrated. We empirically assess the relevance of these granular effects in banking using a linked micro-macro dataset of more than 80 countries for the years 1995-2009. The banking sector for many countries is indeed granular, as the right tail of the bank size distribution follows a power law. We then demonstrate granular effects in the banking sector on macroeconomic outcomes. The presence of big banks measured by high market concentration is associated with a positive and significant relationship between bank-level credit growth and aggregate growth of credit or gross domestic product.

Keywords: Granularity; concentration; bank competition; macroeconomic outcomes; bank markups (search for similar items in EconPapers)
JEL-codes: E32 G21 (search for similar items in EconPapers)
Pages: 40 p.
Date: 2013
New Economics Papers: this item is included in nep-ban and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

Downloads: (external link)
https://www.diw.de/documents/publikationen/73/diw_01.c.434052.de/dp1348.pdf (application/pdf)

Related works:
Journal Article: Big Banks and Macroeconomic Outcomes: Theory and Cross‐Country Evidence of Granularity (2018)
Working Paper: Big Banks and Macroeconomic Outcomes: Theory and Cross-Country Evidence of Granularity (2018)
Working Paper: Big Banks and Macroeconomic Outcomes: Theory and Cross-Country Evidence of Granularity (2013)
Working Paper: Big Banks and Macroeconomic Outcomes: Theory and Cross-Country Evidence of Granularity (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:diw:diwwpp:dp1348

Access Statistics for this paper

More papers in Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by Bibliothek ().