Bank market power, asset liquidity and funding liquidity

International evidence

Research output: Contribution to journalArticleResearchpeer-review

1 Citation (Scopus)

Abstract

Our investigation of the association between bank market power and liquidity in 101 countries reveals that a bank's initial gains of market power lead to increases in bank liquidity, but does so at a diminishing rate. Beyond an empirically determined threshold, further increases in market power are inversely associated with bank liquidity. From a cross-sectional viewpoint, banks that lack market power hold more liquid assets and are net lenders in the interbank market. In contrast, dominant banks hold less liquid assets and are net interbank borrowers. For a given level of market power, ceteris paribus, developed nation banks hold less asset liquidity and obtain more interbank funding liquidity than their developing country peers. These results remain equally relevant during the 2007–2009 global financial crisis (GFC).

Original languageEnglish
Pages (from-to)23-38
Number of pages16
JournalInternational Review of Financial Analysis
Volume54
DOIs
Publication statusPublished - 1 Nov 2017

Keywords

  • Asset liquidity
  • Funding liquidity
  • Lerner index
  • Market power
  • Net stable funding ratio

Cite this

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title = "Bank market power, asset liquidity and funding liquidity: International evidence",
abstract = "Our investigation of the association between bank market power and liquidity in 101 countries reveals that a bank's initial gains of market power lead to increases in bank liquidity, but does so at a diminishing rate. Beyond an empirically determined threshold, further increases in market power are inversely associated with bank liquidity. From a cross-sectional viewpoint, banks that lack market power hold more liquid assets and are net lenders in the interbank market. In contrast, dominant banks hold less liquid assets and are net interbank borrowers. For a given level of market power, ceteris paribus, developed nation banks hold less asset liquidity and obtain more interbank funding liquidity than their developing country peers. These results remain equally relevant during the 2007–2009 global financial crisis (GFC).",
keywords = "Asset liquidity, Funding liquidity, Lerner index, Market power, Net stable funding ratio",
author = "My Nguyen and Shrimal Perera and Michael Skully",
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Bank market power, asset liquidity and funding liquidity : International evidence. / Nguyen, My; Perera, Shrimal; Skully, Michael.

In: International Review of Financial Analysis, Vol. 54, 01.11.2017, p. 23-38.

Research output: Contribution to journalArticleResearchpeer-review

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AB - Our investigation of the association between bank market power and liquidity in 101 countries reveals that a bank's initial gains of market power lead to increases in bank liquidity, but does so at a diminishing rate. Beyond an empirically determined threshold, further increases in market power are inversely associated with bank liquidity. From a cross-sectional viewpoint, banks that lack market power hold more liquid assets and are net lenders in the interbank market. In contrast, dominant banks hold less liquid assets and are net interbank borrowers. For a given level of market power, ceteris paribus, developed nation banks hold less asset liquidity and obtain more interbank funding liquidity than their developing country peers. These results remain equally relevant during the 2007–2009 global financial crisis (GFC).

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