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Financial consolidation and liquidity: prudential regulation and/or competition policy?

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Author Info

  • Patrick Van Cayseele

    ()
    (K.U.Leuven
    Belgian Competition Authority)

Abstract

A model of loan rate competition with liquidity provision by banks is used to study bank mergers. Both loan rate competition and liquidity needs are seen to be "localised" phenomena. This allows for tracing down the effects of particular types of bank mergers. As such, we contrast the effects of "revenue base enhancing" mergers with the effects of mergers "for market power". The optimal post merger loan rate and risk management decisions are derived. The fundamental trade-off between stability and efficiency is often present, indicating that the approval of bank mergers induces difficult policy choices.

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File URL: http://www.nbb.be/doc/oc/repec/reswpp/WP50.pdf
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Bibliographic Info

Paper provided by National Bank of Belgium in its series Working Paper Research with number 50.

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Length: 53 pages
Date of creation: May 2004
Date of revision:
Handle: RePEc:nbb:reswpp:200405-6

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Keywords: bank mergers; merger review process; liquidity; loan Rates;

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