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Banking Networks and Economic Growth: From Idiosyncratic Shocks to Aggregate Fluctuations

Shohini Kundu & Nishant Vats

American Economic Journal: Macroeconomics2026https://doi.org/10.1257/mac.20220153article
AJG 4ABDC A*
Weight
0.50

Abstract

This paper investigates the role of banking networks in the transmission of shocks across borders. Combining banking deregulation in the United States with state-level idiosyncratic demand shocks, we show that geographically diversified banks reallocate funds from economies experiencing negative shocks to unaffected regions. Our findings indicate that in the presence of idiosyncratic shocks, financial integration reduces business cycle comovement and synchronizes consumption patterns. Our findings contribute to explaining the Great Moderation and provide empirical support for theories that predict that banking integration facilitates the insurance of region-specific risk and the efficient allocation of resources as markets become more complete. (JEL E32, F65, G21, G28, J24, L14, R11)

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https://doi.org/https://doi.org/10.1257/mac.20220153

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@article{shohini2026,
  title        = {{Banking Networks and Economic Growth: From Idiosyncratic Shocks to Aggregate Fluctuations}},
  author       = {Shohini Kundu & Nishant Vats},
  journal      = {American Economic Journal: Macroeconomics},
  year         = {2026},
  doi          = {https://doi.org/https://doi.org/10.1257/mac.20220153},
}

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Banking Networks and Economic Growth: From Idiosyncratic Shocks to Aggregate Fluctuations

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Evidence weight

0.50

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.50 × 0.4 = 0.20
M · momentum0.50 × 0.15 = 0.07
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

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