The impact of competitiveness amongst banks on liquidity creation: Evidence from the US

Press/Media

Description

By creating liquidity, banks improve the allocation of capital and accelerate economic growth. This column uses evidence from US banks between 1984 and 2006 to evaluate the impact of competition amongst banks on their liquidity creation. It finds that an intensification of competition in the banking industry materially reduces liquidity creation. Furthermore, the evidence suggests that more profitable banks experience a smaller reduction in liquidity creation because of their ability to better absorb risk. Similarly, an intensification of competition reduces liquidity creation more among small banks, who are more engaged in relationship lending.

Period20 May 2016

Media contributions

1

Media contributions

  • TitleThe impact of competitiveness amongst banks on liquidity creation: Evidence from the US
    CountryUnited States
    Date20/05/16
    DescriptionBy creating liquidity, banks improve the allocation of capital and accelerate economic growth. This column uses evidence from US banks between 1984 and 2006 to evaluate the impact of competition amongst banks on their liquidity creation. It finds that an intensification of competition in the banking industry materially reduces liquidity creation. Furthermore, the evidence suggests that more profitable banks experience a smaller reduction in liquidity creation because of their ability to better absorb risk. Similarly, an intensification of competition reduces liquidity creation more among small banks, who are more engaged in relationship lending.
    URLhttps://voxeu.org/article/competition-and-creation-bank-liquidity
    PersonsLiangliang Jiang