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Bank Mergers, Competition and Liquidity

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  • Carletti, Elena

    ()
    (Center for Financial Studies)

  • Hartmann, Philipp

    ()
    (European Central Bank)

  • Spagnolo, Giancarlo

    ()
    (Stockholm School of Economics)

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. Loan market competition modifies the heterogeneity in the size of banks, thus affecting aggregate liquidity. Mergers among large banks tend to increase aggregate liquidity needs and thus the liquidity provision in monetary operations by the central bank.

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Bibliographic Info

Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 182.

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Length: 49 pages
Date of creation: 01 Mar 2005
Date of revision:
Handle: RePEc:hhs:rbnkwp:0182

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Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
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Keywords: Credit market competition; bank reserves; internal money market; banking system liquidity;

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