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Bremus, Franziska; Buch, Claudia M.; Russ, Katheryn N.; Schnitzer, Monika (2018): Big Banks and Macroeconomic Outcomes: Theory and Cross-Country Evidence of Granularity. In: Journal of Money Credit and Banking, Vol. 50, No. 8: pp. 1785-1825
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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.