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

Does the mere presence of big banks affect macroeconomic outcomes? We develop a theory of granularity for the banking sector by modeling heterogeneous banks charging variable markups. Using data for a large set of countries, we show that the banking sector is indeed "granular," as the righ...

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Bibliographic Details
Published in:Journal of money, credit and banking credit and banking, 2018-12, Vol.50 (8), p.1785-1825
Main Authors: BREMUS, FRANZISKA, BUCH, CLAUDIA M., RUSS, KATHERYN N., SCHNITZER, MONIKA
Format: Article
Language:English
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Summary:Does the mere presence of big banks affect macroeconomic outcomes? We develop a theory of granularity for the banking sector by modeling heterogeneous banks charging variable markups. Using data for a large set of countries, we show that the banking sector is indeed "granular," as the right tail of the bank size distribution follows a power law. We demonstrate empirically that the presence of big banks, measured by a high degree of market concentration, is associated with a positive and significant relationship between bank-level credit growth and aggregate growth of credit or GDP.
ISSN:0022-2879
1538-4616
DOI:10.1111/jmcb.12545