This paper formally identifies an important role of banks: Banks competitively internalize production externalities and facilitate economic growth. I formulate a canonical growth model with externalities as a game among consumers, firms, and banks. Banks compete for deposits to seek monopoly...

Competition among banks promotes growth and stability for an economy with production externality. Following Arrow and Debreu (1954), I formulate a standard growth model with externality — a two-period version of Romer (1986) — as a game among consumers, firms, and intermediaries. The...

Between the early-1970s and the mid-1990s, the U.S. banking sector was deregulated and U.S. workers gained more statuary basic protections. The effects of these two reforms on productive activity have largely been studied separately in the finance and labor literatures. Yet they only have...