Bank Mergers, Competition and Liquidity

Topics:
Commercial Banking
Tags:
Bank,
Finance,
Investment,
Liquidity,
University Of Mannheim
Source:
University of Mannheim

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Overview: This white paper provides a model of the impact of bank mergers on loan competition, individual reserve management and aggregate liquidity risk. Banks compete in rates of differentiated loans, hold reserves against liquidity shocks and refinance in the interbank money market if shocks exceed individual reserves. Mergers can affect market shares, cost efficiency, reserve holdings and the distribution of liquidity shocks. In solving the model with and without merger we assess the liquidity risk and the expected liquidity needs for each bank as well as the risk that banking consolidation may drain liquidity away from the interbank money market.

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Format: PDF | Size: 417KB | Date: Apr 2002 | Pages: 43

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