Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212771 
Year of Publication: 
2013
Series/Report no.: 
BOFIT Discussion Papers No. 16/2013
Publisher: 
Bank of Finland, Institute for Economies in Transition (BOFIT), Helsinki
Abstract: 
This paper evaluates the effect of bank competition on liquidity creation by banks. Thus, we contribute to the literature on both bank competition and the determinants of liquidity creation by banks. To explore this relationship, we conduct dynamic GMM panel estimations on a dataset of Czech banks from 2002 to 2010. We find that enhanced competition reduces liquidity creation, a finding we observe under different specifications, including alternative measures of liquidity creation. We explain this finding in terms of the impact of increased bank competition on the financial fragility of banks, which leads banks to reduce their lending and deposit activities. The evidence suggests that pro-competitive policies in the banking industry can reduce liquidity provision by banks.
Subjects: 
bank competition
liquidity creation
JEL: 
G21
Persistent Identifier of the first edition: 
ISBN: 
978-952-6699-19-6
Document Type: 
Working Paper

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