Bank mergers, competition and liquidity

Elena Carletti (), Philipp Hartmann and Giancarlo Spagnolo

No 292, Working Paper Series from European Central Bank

Abstract: 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 interbank 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 statics suggest that a more competitive environment moderates this effect. JEL Classification: D43, G21, G28, L13

Keywords: banking system liquidity; bank reserves; credit market competition; internal money market (search for similar items in EconPapers)
Date: 2003-11
Note: 229414
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Related works:
Journal Article: Bank Mergers, Competition, and Liquidity (2007)
Journal Article: Bank Mergers, Competition, and Liquidity (2007)
Working Paper: Bank mergers, competition and liquidity (2006)
Working Paper: Bank Mergers, Competition and Liquidity (2005)
Working Paper: Bank Mergers, Competition and Liquidity (2004)
Working Paper: Bank mergers, competition, and liquidity (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2003292

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