Elena Carletti () (Center for Financial Studies, Frankfurt, and Wharton Financial Institution Center) Philipp Hartmann () (European Central Bank, Frankfurt) Giancarlo Spagnolo () (Stockholm School of Economics, Consip Research Unit, and CEPR)
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We model the impact of bank mergers on loan competition, reserve holdings and aggregate liquidity. A merger changes the distribution of liquidity shocks and creates an internal money market, leading to financial cost efficiencies and more precise estimates of liquidity needs. The merged banks may increase their reserve holdings through an internalization effect or decrease them because of a diversification effect. The merger also affects loan market competition, which in turn modifies the distribution of bank sizes and aggregate liquidity needs. Mergers among large banks tend to increase aggregate liquidity needs and thus the public provision of liquidity through monetary operations of the central bank.
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Paper provided by Center for Financial Studies in its series CFS Working Paper Series with number
2006/08.
Length: 49 pages Date of creation: 06 Mar 2006 Date of revision: Handle: RePEc:cfs:cfswop:wp200608
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