Banking Structures, Liquidity, and Macroeconomic Stability

Luis Araujo, Elton Beqiraj, David Hong, Sotirios Kokas and Raoul Minetti

No 202, CIMEO Working Paper Series from Centre for Investigation and Modelling of Experimental Observations (CIMEO)

Abstract: Banking is increasingly a complex activity, with financial institutions cooperating in borrowers' financing and monitoring. We study an economy where banks use information to screen investment quality and to recover collateral from investments. Complex banking, defined as lenders' joint production of information on borrowers, eases the salvage of investments but also facilitates the disclosure of investments' fragility. We find that complex banking can be a source of significant macroeconomic non-linearities: it enhances the resilience to small aggregate shocks but can precipitate a crisis following large negative shocks. The predictions of the model are consistent with evidence from matched bank-firm US data.

Keywords: Banking; Aggregate fluctuations; Information; Investments (search for similar items in EconPapers)
JEL-codes: D83 E44 G21 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:ter:wpaper:00202

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