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Bank Mergers, Competition and Liquidity

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Author Info
Carletti, Elena
Hartmann, Philipp
Spagnolo, Giancarlo

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Abstract

We model the impact of bank mergers on loan competition, reserve holdings and aggregate liquidity. A merger creates an internal money market that affects reserve holdings and induces financial cost advantages, but also withdraws liquidity from the interbank market. We assess changes in liquidity needs for each bank and for the banking system as a whole, and relate them to the degree of loan market competition. Large mergers tend to increase aggregate liquidity needs, and thus the liquidity provision in monetary operations by the central bank. Fiercer loan market competition seems to be beneficial for aggregate liquidity in industrial countries.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4260.

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Date of creation: Feb 2004
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Handle: RePEc:cpr:ceprdp:4260

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Related research
Keywords: bank reserves; banking system liquidity; credit market competition; internal money market;

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Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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Cited by:
(explanations, 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.)

  1. Jaap W.B. Bos & Ryan C.R. van Lamoen & James W. Kolari, 2009. "Competition and Innovation: Evidence from Financial Services," Working Papers 09-16, Utrecht School of Economics. [Downloadable!]
  2. Eduardo Levy Yeyati & Alejandro Micco, 2003. "Concentración y penetración foránea en los sectores bancarios latinoamericanos: repercusiones sobre la competencia y el riesgo," RES Working Papers 4354, Inter-American Development Bank, Research Department. [Downloadable!]
  3. Totzek, Alexander, 2008. "The Bank, the Bank-Run, and the Central Bank: The Impact of Early Deposit Withdrawals in a New Keynesian Framework," Economics Working Papers 2008,20, Christian-Albrechts-University of Kiel, Department of Economics. [Downloadable!]
  4. Gurnain Kaur Pasricha, 2009. "Bank Competition and International Financial Integration:Evidence Using a New Index," Working Papers 242009, Hong Kong Institute for Monetary Research. [Downloadable!]
    Other versions:
  5. José Manuel Campa & Ignacio Hernando, 2005. "M&As performance in the European financial industry," Banco de España Working Papers 0516, Banco de España. [Downloadable!]
    Other versions:
  6. Elena Carletti & Philipp Hartmann & Steven Ongena, 2007. "The economic impact of merger control - what is special about banking?," Working Paper Series 786, European Central Bank. [Downloadable!]
  7. Albert Banal-Estañol & Marco Ottaviani, 2006. "Bank Mergers and Diversification: Implications for Competition Policy," City University Economics Discussion Papers 06/11, Department of Economics, City University, London. [Downloadable!]
    Other versions:
  8. Fecht, Falko & Grüner, Hans Peter & Hartmann, Philipp, 2007. "Welfare Effects of Financial Integration," CEPR Discussion Papers 6311, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  9. Falko Fecht & Antoine Martin, 2005. "Banks, markets, and efficiency," Staff Reports 210, Federal Reserve Bank of New York. [Downloadable!]
    Other versions:
  10. Claudia M. Buch & Gayle L. DeLong, 2008. "Banking Globalization: International Consolidation and Mergers in Banking," IAW Discussion Papers 38, Institut für Angewandte Wirtschaftsforschung (IAW). [Downloadable!]
  11. Andrea M. Maechler & Sandra Marcelino & Paulo Flavio Nacif Drummond, 2007. "Italy-Assessing Competition and Efficiency in the Banking System," IMF Working Papers 07/26, International Monetary Fund. [Downloadable!]
  12. Eduardo Levy Yeyati & Alejandro Micco, 2003. "Concentration and Foreign Penetration in Latin American Banking Sectors: Impact on Competition and Risk," RES Working Papers 4353, Inter-American Development Bank, Research Department. [Downloadable!]
    Other versions:
  13. Degryse, H.A. & Nguyen, G., 2004. "Interbank exposures : an empirical examination of systemic risk in the Belgian banking system," Discussion Paper 4, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  14. Elmer Sterken, 2006. "Competition in the Dutch Mortgage Market," De Economist, Springer, vol. 154(4), pages 587-600, December. [Downloadable!] (restricted)
  15. J.A. Bikker & A.A.T. Wesseling, 2003. "Intermediation, integration and internationalisation: a survey on banking in Europe," Research Series Supervision (discontinued) 53, Netherlands Central Bank, Directorate Supervision. [Downloadable!]
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