The effects of bank consolidation on risk capital allocation and market liquidity
In: Market functioning and central bank policy
AbstractWe investigate the effects of financial market consolidation on the allocation of risk capital in a financial institution and the implications for market liquidity in dealership markets. An increase in financial market consolidation can increase liquidity in foreign exchange and government securities markets. We assume that financial institutions use risk-management tools in the allocation of risk capital and that capital is determined at the firm level and allocated among separate business lines or divisions. The ability of market makers to supply liquidity is influenced by their risk-bearing capacity, which is directly related to the amount of risk capital allocated to this activity. 2006 The Southern Finance Association and the Southwestern Finance Association.
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This item is provided by Bank for International Settlements in its series BIS Papers chapters with number 12-05.
Other versions of this item:
- Chris D'Souza & Alexandra Lai, 2006. "The Effects Of Bank Consolidation On Risk Capital Allocation And Market Liquidity," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 29(2), pages 271-291.
- Chris D'Souza & Alexandra Lai, 2002. "The Effects of Bank Consolidation on Risk Capital Allocation and Market Liquidity," Working Papers 02-5, Bank of Canada.
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Stoughton, Neal & Zechner, Josef, 1999. "Optimal Capital Allocation Using RAROC And EVA," CEPR Discussion Papers 2344, C.E.P.R. Discussion Papers.
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- Lescourret, Laurence & Robert, Christian Y., 2011. "Transparency matters: Price formation in the presence of order preferencing," Journal of Financial Markets, Elsevier, vol. 14(2), pages 227-258, May.
- Robert DeYoung & Douglas Evanoff & Philip Molyneux, 2009. "Mergers and Acquisitions of Financial Institutions: A Review of the Post-2000 Literature," Journal of Financial Services Research, Springer, vol. 36(2), pages 87-110, December.
- Chris D'Souza, 2002. "How Do Canadian Banks That Deal in Foreign Exchange Hedge Their Exposure to Risk?," Working Papers 02-34, Bank of Canada.
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