. Empirically, we find that intermediary leverage is negatively aligned with the banks' Value-at-Risk (VaR). Motivated by the …

Does the mere presence of big banks affect macroeconomic outcomes? In this paper, we develop a theory of granularity … (Gabaix, 2011) for the banking sector, introducing Bertrand competition and heterogeneous banks charging variable markups …. Using this framework, we show conditions under which idiosyncratic shocks to bank lending can generate aggregate …

Banks are optimally opaque institutions. They produce debt for use as a transaction medium (bank money), which requires … that information about the backing assets - loans - not be revealed, so that bank money does not fluctuate in value …, needed for allocative efficiency. Intermediaries exist to hide such information, so banks select portfolios of information …

We propose a novel mechanism, "financial dampening," whereby loan retrenchment by banks attenuates the effectiveness of … monetary policy. The theory unifies an endogenous supply of illiquid local loans and risk-sharing among subsidiaries of bank … exploiting linkages through BHC-internal capital markets across spatially-separate BHC member-banks. We estimate that retrenching …