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

Franziska Bremus, Claudia Buch, Katheryn Russ and Monika Schnitzer

No 19093, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E32 E44 F4 F62 G0 G21 (search for similar items in EconPapers)
Date: 2013-05
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-opm
Note: ITI
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Citations: View citations in EconPapers (38)

Published as FRANZISKA BREMUS & CLAUDIA M. BUCH & KATHERYN N. RUSS & MONIKA SCHNITZER, 2018. "Big Banks and Macroeconomic Outcomes: Theory and Cross-Country Evidence of Granularity," Journal of Money, Credit and Banking, vol 50(8), pages 1785-1825.

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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)
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