THE EFFECTS OF BANK CONSOLIDATION ON RISK CAPITAL ALLOCATION AND MARKET LIQUIDITY

Chris D'Souza and Alexandra Lai

Journal of Financial Research, 2006, vol. 29, issue 2, 271-291

Abstract: We investigate the effects of financial market consolidation on the allocation of risk capital in a financial institution and the implications for market liquidity in dealership markets. An increase in financial market consolidation can increase liquidity in foreign exchange and government securities markets. We assume that financial institutions use risk‐management tools in the allocation of risk capital and that capital is determined at the firm level and allocated among separate business lines or divisions. The ability of market makers to supply liquidity is influenced by their risk‐bearing capacity, which is directly related to the amount of risk capital allocated to this activity.

Date: 2006
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https://doi.org/10.1111/j.1475-6803.2006.00178.x

Related works:
Chapter: The effects of bank consolidation on risk capital allocation and market liquidity (2002)
Working Paper: The Effects of Bank Consolidation on Risk Capital Allocation and Market Liquidity (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfnres:v:29:y:2006:i:2:p:271-291

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