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Bank mergers, competition, and liquidity

  • Elena Carletti
  • Philipp Hartman
  • Giancarlo Spagnolo

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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Paper provided by Federal Reserve Bank of Chicago in its series Proceedings with number 854.

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Length: 89-99
Date of creation: 2003
Date of revision:
Publication status: Published in Conference on Bank Structure and Competition (2003 : 39th) ; Corporate governance : implications for financial services firm
Handle: RePEc:fip:fedhpr:854
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