Scandinavian Working Papers in Economics
Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)
No 182: Bank Mergers, Competition and Liquidity
Elena Carletti (), Philipp Hartmann () and Giancarlo Spagnolo ()
Additional contact information
Elena Carletti: Center for Financial Studies, Postal: Taunusanlage 6 , D-60329 Frankfurt am Main , Germany
Philipp Hartmann: European Central Bank, Postal: DG Research, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany
Giancarlo Spagnolo: Stockholm School of Economics, Postal: Department of Economics, P.O Box 6501, SE-113 83 Stockholm, Sweden
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.
Keywords: Credit market competition; bank reserves; internal money market; banking system liquidity
49 pages, March 1, 2005
Full text files
WP_182.pdf
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