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How bank competition influences liquidity creation


  • Horvath, Roman
  • Seidler, Jakub
  • Weill, Laurent


This paper evaluates the effect of bank competition on liquidity creation by banks. Thus, we contribute to the literature on both bank competition and the determinants of liquidity creation by banks. To explore this relationship, we conduct dynamic GMM panel estimations on a dataset of Czech banks from 2002 to 2010. We find that enhanced competition reduces liquidity creation, a finding we observe under different specifications, including alternative measures of liquidity creation. We explain this finding in terms of the impact of increased bank competition on the financial fragility of banks, which leads banks to reduce their lending and deposit activities. The evidence suggests that pro-competitive policies in the banking industry can reduce liquidity provision by banks.

Suggested Citation

  • Horvath, Roman & Seidler, Jakub & Weill, Laurent, 2016. "How bank competition influences liquidity creation," Economic Modelling, Elsevier, vol. 52(PA), pages 155-161.
  • Handle: RePEc:eee:ecmode:v:52:y:2016:i:pa:p:155-161 DOI: 10.1016/j.econmod.2014.11.032

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    1. repec:nax:conyad:v:63:y:2018:i:1:p:5-6 is not listed on IDEAS
    2. repec:nax:conyad:v:63:y:2018:i:1:p:7-8 is not listed on IDEAS
    3. repec:nax:conyad:v:63:y:2018:i:1:p:3-4 is not listed on IDEAS
    4. repec:eee:finana:v:54:y:2017:i:c:p:23-38 is not listed on IDEAS
    5. Jana Lastuvkova, 2014. "Liquidity management strategies in the Czech banking sector," MENDELU Working Papers in Business and Economics 2014-47, Mendel University in Brno, Faculty of Business and Economics.
    6. Jana Lastuvkova, 2015. "Determinants of the Slovak bank liquidity flows," MENDELU Working Papers in Business and Economics 2015-51, Mendel University in Brno, Faculty of Business and Economics.

    More about this item


    Bank competition; Liquidity creation;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages


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