(Revised August 2, 2026)

Motivated by a secular increase in the concentration of the U.S. banking industry, I develop a new macroeconomic model with oligopolistic financial intermediaries and heterogeneous firms. Market power allows banks to price discriminate and charge firm-specific markups, exerting greater market power over productive and more financially constrained firms. This dampens capital accumulation and amplifies the effects of macroeconomic shocks. During a crisis, banks exploit the higher share of financially constrained firms to extract higher markups, inducing a larger decline in real activity. When a large bank fails, the remaining banks use their increased market power to restrict credit supply, worsening and prolonging the downturn.