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Bank Mergers, Competition and Liquidity

Author

Listed:
  • Carletti, Elena

    () (Center for Financial Studies)

  • Hartmann, Philipp

    () (European Central Bank)

  • Spagnolo, Giancarlo

    () (Stockholm School of Economics)

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.

Suggested Citation

  • Carletti, Elena & Hartmann, Philipp & Spagnolo, Giancarlo, 2005. "Bank Mergers, Competition and Liquidity," Working Paper Series 182, Sveriges Riksbank (Central Bank of Sweden).
  • Handle: RePEc:hhs:rbnkwp:0182
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    References listed on IDEAS

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    More about this item

    Keywords

    Credit market competition; bank reserves; internal money market; banking system liquidity;

    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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