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How bank competition influence liquidity creation

Listed author(s):
  • 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. JEL Codes: G21. Keywords: bank competition, liquidity creation.

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File URL: https://helda.helsinki.fi/bof/bitstream/123456789/8075/1/172130.pdf
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Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 16/2013.

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Date of creation: 25 Jun 2013
Publication status: Published in Published in Economic Modelling, Volume 52, Part A, January 2016, Pages 155–161. Special Issue on Recent Developments in Decision-Making, Monetary Policy and Financial Markets.
Handle: RePEc:bof:bofitp:2013_016
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Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland

Phone: + 358 9 183 2268
Fax: + 358 9 183 2294
Web page: http://www.bofit.fi/en/
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