Heterogeneous Financial Intermediaries in Business Cycle Analysis

This paper builds and solves a quantitative macroeconomic model with heterogeneous financial intermediaries, incomplete markets, and aggregate uncertainty. Intermediaries face an uninsurable idiosyncratic operational risk shock. This generates both persistent heterogeneity and an endogenous occasionally binding constraint on bank leverage. I solve for the stationary distribution of bank net worth, assets, and leverage. The distribution of leverage features countercyclical mean, dispersion and skewness.