IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

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

Listed author(s):
  • Bremus, Franziska
  • Buch, Claudia M.
  • Russ, Katheryn N.
  • Schnitzer, Monika

Does the mere presence of big banks affect macroeconomic outcomes? Gabaix (2011) shows that idosyncratic shocks can have aggregate effects if the distribution of firm sizes in manufacturing follows a power law distribution. Our contribution is two-fold. First, we expand the theory of granularity to encompass the Bertrand competition frequently used in models of banking. Using a model with banks of heterogenous size who charge endogenous markups, we show under which conditions granular effects emerge. Second, we empirically assess the relevance of granularity effects in banking using a linked micro-macro dataset of more than 80 countries for the years 1996-2009. We show that the banking sector is granular, i.e. the right tail of the bank size distribution follows a power law. Also, the presence of big banks as measured by high market concentration magnifies the effect of idiosyncratic shocks on loan growth. Through this channel, idiosyncratic shocks affecting large banks impact upon macroeconomic outcomes. This effect is particularly important for countries with less developed banking systems.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: https://www.econstor.eu/bitstream/10419/80048/1/VfS_2013_pid_267.pdf
Download Restriction: no

Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order with number 80048.

as
in new window

Length:
Date of creation: 2013
Handle: RePEc:zbw:vfsc13:80048
Contact details of provider: Web page: http://www.socialpolitik.org/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Kalemli-Ozcan, Sebnem & Papaioannou, Elias & Perri, Fabrizio, 2013. "Global banks and crisis transmission," Journal of International Economics, Elsevier, vol. 89(2), pages 495-510.
  2. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 624-660, June.
  3. Denis, David J. & Osobov, Igor, 2008. "Why do firms pay dividends? International evidence on the determinants of dividend policy," Journal of Financial Economics, Elsevier, vol. 89(1), pages 62-82, July.
  4. Javier Andrés & Oscar Arce, 2012. "Banking Competition, Housing Prices and Macroeconomic Stability," Economic Journal, Royal Economic Society, vol. 122(565), pages 1346-1372, December.
  5. John Hawkins & Dubravko Mihaljek, 2001. "The banking industry in the emerging market economies: competition, consolidation and systemic stability: an overview," BIS Papers chapters, in: Bank for International Settlements (ed.), The banking industry in the emerging market economies: competition, consolidation and systemic stability, volume 4, pages 1-44 Bank for International Settlements.
  6. Nicholas Bloom & Max Floetotto & Nir Jaimovich & Itay Saporta-Eksten & Stephen J. Terry, 2012. "Really Uncertain Business Cycles," NBER Working Papers 18245, National Bureau of Economic Research, Inc.
  7. Christian Broda & David E. Weinstein, 2006. "Globalization and the Gains From Variety," The Quarterly Journal of Economics, Oxford University Press, vol. 121(2), pages 541-585.
  8. Fidora, Michael & Fratzscher, Marcel & Thimann, Christian, 2007. "Home bias in global bond and equity markets: The role of real exchange rate volatility," Journal of International Money and Finance, Elsevier, vol. 26(4), pages 631-655, June.
  9. di Giovanni, Julian & Levchenko, Andrei A. & Rancière, Romain, 2011. "Power laws in firm size and openness to trade: Measurement and implications," Journal of International Economics, Elsevier, vol. 85(1), pages 42-52, September.
  10. Beatriz de Blas & Katheryn Russ, 2010. "Understanding Markups in the Open Economy under Bertrand Competition," NBER Working Papers 16587, National Bureau of Economic Research, Inc.
  11. Anderson, Simon P. & De Palma, Andre & Thisse, Jacques-Francois, 1987. "The CES is a discrete choice model?," Economics Letters, Elsevier, vol. 24(2), pages 139-140.
  12. Buch, Claudia M. & Neugebauer, Katja, 2011. "Bank-specific shocks and the real economy," Journal of Banking & Finance, Elsevier, vol. 35(8), pages 2179-2187, August.
  13. Hale, Galina, 2012. "Bank relationships, business cycles, and financial crises," Journal of International Economics, Elsevier, vol. 88(2), pages 312-325.
  14. Xavier Freixas & Jean-Charles Rochet, 2008. "Microeconomics of Banking, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262062704, September.
  15. DeAngelo, Harry & DeAngelo, Linda & Stulz, Rene M., 2006. "Dividend policy and the earned/contributed capital mix: a test of the life-cycle theory," Journal of Financial Economics, Elsevier, vol. 81(2), pages 227-254, August.
  16. Blank, Sven & Buch, Claudia M. & Neugebauer, Katja, 2009. "Shocks at large banks and banking sector distress: The Banking Granular Residual," Journal of Financial Stability, Elsevier, vol. 5(4), pages 353-373, December.
  17. Ignazio Angeloni, 2009. "A Tale of Two Policies: Prudential Regulation and Monetary Policy with Fragile Banks," Working Papers 345, Bruegel.
  18. Corvoisier, Sandrine & Gropp, Reint, 2002. "Bank concentration and retail interest rates," Journal of Banking & Finance, Elsevier, vol. 26(11), pages 2155-2189, November.
  19. Cacciatore, Matteo & Ghironi, Fabio & Stebunovs, Viktors, 2015. "The domestic and international effects of interstate U.S. banking," Journal of International Economics, Elsevier, vol. 95(2), pages 171-187.
  20. Adam Ashcraft & James Mcandrews & David Skeie, 2011. "Precautionary Reserves and the Interbank Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 311-348, October.
  21. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
  22. Nikola Tarashev & Claudio Borio & Kostas Tsatsaronis, 2009. "The systemic importance of financial institutions," BIS Quarterly Review, Bank for International Settlements, September.
  23. Meh, Césaire A. & Moran, Kevin, 2010. "The role of bank capital in the propagation of shocks," Journal of Economic Dynamics and Control, Elsevier, vol. 34(3), pages 555-576, March.
  24. Anil K. Kashyap & Raghuram Rajan & Jeremy C. Stein, 2002. "Banks as Liquidity Providers: An Explanation for the Coexistence of Lending and Deposit-Taking," Journal of Finance, American Finance Association, vol. 57(1), pages 33-73, 02.
  25. Eric van Wincoop, 2013. "International Contagion through Leveraged Financial Institutions," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(3), pages 152-189, July.
  26. Mandelman, Federico S., 2010. "Business cycles and monetary regimes in emerging economies: A role for a monopolistic banking sector," Journal of International Economics, Elsevier, vol. 81(1), pages 122-138, May.
  27. Julian di Giovanni & Andrei A. Levchenko, 2009. "Trade Openness and Volatility," The Review of Economics and Statistics, MIT Press, vol. 91(3), pages 558-585, August.
  28. Stephen P. Jenkins & Philippe Van Kerm, 2007. "PARETOFIT: Stata module to fit a Type 1 Pareto distribution," Statistical Software Components S456832, Boston College Department of Economics, revised 11 Nov 2015.
  29. Gabaix, Xavier & Ibragimov, Rustam, 2011. "Rank − 1 / 2: A Simple Way to Improve the OLS Estimation of Tail Exponents," Journal of Business & Economic Statistics, American Statistical Association, vol. 29(1), pages 24-39.
  30. Andrea Gerali & Stefano Neri & Luca Sessa & Federico M. Signoretti, 2010. "Credit and Banking in a DSGE Model of the Euro Area," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 107-141, 09.
  31. Berger, Allen N. & Demsetz, Rebecca S. & Strahan, Philip E., 1999. "The consolidation of the financial services industry: Causes, consequences, and implications for the future," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 135-194, February.
  32. Aban, Inmaculada B. & Meerschaert, Mark M. & Panorska, Anna K., 2006. "Parameter Estimation for the Truncated Pareto Distribution," Journal of the American Statistical Association, American Statistical Association, vol. 101, pages 270-277, March.
  33. Christoph Walkner & Jean-Pierre Raes, 2005. "Integration and consolidation in EU banking - an unfinished business," European Economy - Economic Papers 2008 - 2015 226, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  34. Schargrodsky, Ernesto & Sturzenegger, Federico, 2000. "Banking regulation and competition with product differentiation," Journal of Development Economics, Elsevier, vol. 63(1), pages 85-111, October.
  35. Davis, E. Philip & De Bandt, Olivier, 1999. "A cross-country comparison of market structures in European banking," Working Paper Series 0007, European Central Bank.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:zbw:vfsc13:80048. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.