How do banks price liquidity? The role of market power

Thach V.H. Nguyen and Thai Nguyen

Global Finance Journal, 2022, vol. 53, issue C

Abstract: We empirically examine the effects of different measures of liquidity on interest margins of a sample of U.S. commercial banks from 2001 to 2018. Overall, the results reveal that liquidity ratios exert a positive influence on bank margins. Furthermore, the study investigates the role of market power in the relationship between liquidity and interest margins. It is documented that dominant banks incorporate the costs associated with investing in liquidity into the bank margins to a lesser extent than banks with less market power, suggesting that the cost of complying with regulatory liquidity standards is reduced when the competition in the banking sector is less intense. The study highlights that market competition might be important in the design and implementation of liquidity regulations.

Keywords: Market power; Lerner index; Liquidity; Net interest margin; NSFR (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:53:y:2022:i:c:s1044028322000382

DOI: 10.1016/j.gfj.2022.100736

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