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Banking Structures, Liquidity, and Macroeconomic Stability

Author

Listed:
  • Luis Araujo
  • Elton Beqiraj
  • David Hong
  • Sotirios Kokas
  • Raoul Minetti

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 (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.

Suggested Citation

  • Luis Araujo & Elton Beqiraj & David Hong & Sotirios Kokas & Raoul Minetti, 2026. "Banking Structures, Liquidity, and Macroeconomic Stability," Working Papers in Public Economics 269, Department of Economics and Law, Sapienza University of Rome.
    • Handle: RePEc:sap:wpaper:wp269
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    Keywords

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    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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