This paper examines the implications of banks' deposit mix and liquidity risk across the bank size distribution for financial stability and macro-prudential policy. U.S. banks mix savings and time deposits, with the share of savings deposits increasing in bank size. I incorporate this in a macroeconomic model of banking industry dynamics, where heterogeneous banks choose their deposit mix and asset portfolio under withdrawal risk in savings deposits. Repayment of withdrawals incentivizes banks to hold securities. Costly time deposits protect against withdrawals and enable banks to substitute loans for securities. Withdrawal risk varies by bank size, explaining the balance sheet composition of assets and deposits, as observed in data. A higher share of savings deposits coming from the low withdrawal risk reduces the average funding cost, expands the banking sector, and increases loans and output in the steady state but raises short-term financial instability. When liquidity requirements are introduced, large banks are the most responsive; they increase demand for securities and cut loan supply, leading to an unintended output cost associated with a less concentrated banking sector in the long run.

This paper examines the macroeconomic impact of allowing production units to pause and reactivate their operations. The ability to pause and resume leads to fewer active firms, which alters the productivity distribution. The capital held by firms that choose to pause suggests a new source of capital misallocation. I develop a dynamic stochastic general equilibrium model featuring heterogeneous firms that can temporarily shutdown their operations. The number of reactivated units from temporary shutdowns is aligned with data from U.S. establishments. In equilibrium, there are fewer active firms compared to a model that does not incorporate this option. This change results in a decline in aggregate productivity and other aggregate variables. The reduction in the number of active firms is the primary driver of the observed effects.

I examine how unsecured credit limits for different households affect business cycles. Credit limits increase with household income, aligning with default risk literature. When income-based credit limits are applied in models with heterogeneous households, aggregate consumption reacts more strongly to productivity shocks. Low-income households face tighter credit limits and have a higher marginal propensity to consume, making aggregate consumption more responsive. Additionally, I explore how credit shocks impact business cycles in a production economy. A shock that tightens credit limits leads to expansion rather than a recession, suggesting a need to separate household savings from financial intermediaries' loan supply to produce a recession episode.