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Financial consolidation and liquidity: prudential regulation and/or competition policy?


  • Patrick Van Cayseele

    () (K.U.Leuven
    Belgian Competition Authority)


A model of loan rate competition with liquidity provision by banks is used to study bank mergers. Both loan rate competition and liquidity needs are seen to be "localised" phenomena. This allows for tracing down the effects of particular types of bank mergers. As such, we contrast the effects of "revenue base enhancing" mergers with the effects of mergers "for market power". The optimal post merger loan rate and risk management decisions are derived. The fundamental trade-off between stability and efficiency is often present, indicating that the approval of bank mergers induces difficult policy choices.

Suggested Citation

  • Patrick Van Cayseele, 2004. "Financial consolidation and liquidity: prudential regulation and/or competition policy?," Working Paper Research 50, National Bank of Belgium.
  • Handle: RePEc:nbb:reswpp:200405-6

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    References listed on IDEAS

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    More about this item


    bank mergers; merger review process; liquidity; loan Rates;

    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
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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