Competition and Bank Liquidity Creation

Liangliang Jiang, Ross Levine, Chen Lin

Research output: Journal article publicationJournal articleAcademic researchpeer-review

22 Citations (Scopus)

Abstract

We use a new identification strategy to assess whether an intensification of competition among banks increases or decreases the provision of a key banking service: liquidity creation. Although theory offers conflicting predictions about the impact of competition on liquidity creation, we find that regulatory-induced competition reduces liquidity creation. Consistent with a subset of models emphasizing that banks pushed toward insolvency reduce risk-taking activities, we discover that regulatory-induced competition reduces liquidity creation more among banks with less risk-absorbing capacity (e.g., less profitable banks).

Original languageEnglish
Pages (from-to)513-538
Number of pages26
JournalJournal of Financial and Quantitative Analysis
Volume54
Issue number2
DOIs
Publication statusPublished - 1 Apr 2019

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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