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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

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  1. Thorsten Beck & Asli Demirgüç-Kunt & Vojislav Maksimovic, 2004. "Bank competition and access to finance: international evidence," Proceedings, Federal Reserve Bank of Cleveland, pages 627-654.
  2. Horváth, Roman & Seidler, Jakub & Weill, Laurent, 2012. "Bank capital and liquidity creation: Granger-causality evidence," Working Paper Series 1497, European Central Bank.
  3. Berger, Allen N. & Klapper, Leora F. & Turk-Ariss, Rima, 2008. "Bank competition and financial stability," Policy Research Working Paper Series 4696, The World Bank.
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  7. T. Beck & O. De Jonghe & G. Schepens, 2011. "Bank competition and stability: cross-country heterogeneity," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/732, Ghent University, Faculty of Economics and Business Administration.
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  13. Nicola Cetorelli & Michele Gambera, 1999. "Banking Market Structure, Financial Dependence and Growth: International Evidence from Industry Data," Center for Financial Institutions Working Papers 00-19, Wharton School Center for Financial Institutions, University of Pennsylvania.
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  15. Jacob Bikker & Sherrill Shaffer & Laura Spierdijk, 2009. "Assessing Competition with the Panzar-Rosse Model: The Role of Scale, Costs, and Equilibrium," DNB Working Papers 225, Netherlands Central Bank, Research Department.
  16. Sturm, Jan-Egbert & Williams, Barry, 2008. "Characteristics determining the efficiency of foreign banks in Australia," Journal of Banking & Finance, Elsevier, vol. 32(11), pages 2346-2360, November.
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  18. Mitchell A. Petersen & Raghuram G. Rajan, 1995. "The Effect of Credit Market Competition on Lending Relationships," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 407-443.
  19. Anca Pruteanu-Podpiera & Franziska Schobert & Laurent Weill, 2008. "Banking competition and cost efficiency: a micro-data analysis on the Czech banking industry," ULB Institutional Repository 2013/14307, ULB -- Universite Libre de Bruxelles.
  20. Yiwei Fang & Iftekhar Hasan & Katherin Marton, 2011. "Bank efficiency in South‐Eastern Europe," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 19(3), pages 495-520, 07.
  21. Santiago Carbó-Valverde & Francisco Rodríguez-Fernández & Gregory F. Udell, 2009. "Bank Market Power and SME Financing Constraints," Review of Finance, European Finance Association, vol. 13(2), pages 309-340.
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  24. Fungáčová, Zuzana & Pessarossi, Pierre & Weill, Laurent, 2013. "Is bank competition detrimental to efficiency? Evidence from China," China Economic Review, Elsevier, vol. 27(C), pages 121-134.
  25. Turk Ariss, Rima, 2010. "On the implications of market power in banking: Evidence from developing countries," Journal of Banking & Finance, Elsevier, vol. 34(4), pages 765-775, April.
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