Bank Mergers, Competition and Liquidity
University of Frankfurt - Center for Financial Studies
European Central Bank (ECB); Centre for Economic Policy Research (CEPR) - International Macroeconomics
Stockholm School of Economics (SITE)
CEPR Discussion Paper No. 4260
We model the impact of bank mergers on loan competition, banks' reserve holdings and aggregate liquidity. Banks compete in a differentiated loan market, hold reserves against liquidity shocks, and refinance in the inter-bank market. A merger creates an internal money market that induces financial cost advantages and may increase reserve holdings. We assess changes in liquidity risk and expected liquidity needs for each bank and for the banking system. Large mergers tend to increase expected aggregate liquidity needs, and thus the liquidity provision by the central bank. Comparative statistics suggest that a more competitive environment moderates this effect.
Number of Pages in PDF File: 46
Keywords: Credit market competition, bank reserves, internal money market, banking system liquidity
JEL Classification: D43, G21, G28, L13working papers series
Date posted: April 5, 2004
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo8 in 0.922 seconds