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Big Banks and Macroeconomic Outcomes: Theory and Cross‐Country Evidence of Granularity
Author(s) -
BREMUS FRANZISKA,
BUCH CLAUDIA M.,
RUSS KATHERYN N.,
SCHNITZER MONIKA
Publication year - 2018
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12545
Subject(s) - granularity , monetary economics , aggregate (composite) , economics , predictive power , variable (mathematics) , explanatory power , distribution (mathematics) , business , financial system , econometrics , mathematical analysis , philosophy , materials science , mathematics , epistemology , computer science , composite material , operating system
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.