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How bank competition influence liquidity creation

  • Horvath, Roman

    ()

    (BOFIT)

  • Seidler, Jakub

    ()

    (BOFIT)

  • Weill, Laurent

    ()

    (BOFIT)

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.

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File URL: http://www.suomenpankki.fi/bofit_en/tutkimus/tutkimusjulkaisut/dp/Documents/2013/dp1613.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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Length: 23 pages
Date of creation: 19 Jun 2013
Date of revision:
Handle: RePEc:hhs:bofitp:2013_016
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Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland

Phone: + 358 10 831 2268
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Web page: http://www.suomenpankki.fi/bofit_en/
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  2. Roman Horvath & Jakub Seidler & Laurent Weill, 2012. "Banks' Capital and Liquidity Creation: Granger Causality Evidence," Working Papers 2012/05, Czech National Bank, Research Department.
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