Bank mergers, competition, and liquidity

Authors:
  • ECElena Carletti
    Elena Carletti
  • PHPhilipp Hartman
    Philipp Hartman
  • GSGiancarlo Spagnolo
    Giancarlo Spagnolo
Preprint
Publisher website
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  • 1 January 2003
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. (This abstract was borrowed from another version of this item.)