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Bank mergers, competition, and liquidity

Author

Listed:
  • Elena Carletti
  • Philipp Hartman
  • Giancarlo Spagnolo

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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Suggested Citation

  • Elena Carletti & Philipp Hartman & Giancarlo Spagnolo, 2003. "Bank mergers, competition, and liquidity," Proceedings 854, Federal Reserve Bank of Chicago.
    • Handle: RePEc:fip:fedhpr:854
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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance 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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