Bank competition and resilience to liquidity shocks

Zehao Liu, Xueyu Yin, Haiyang Tu and Chengsi Zhang

International Review of Economics & Finance, 2025, vol. 102, issue C

Abstract: We investigate the relationship between bank competition and banks’ resilience to liquidity shocks. Exploiting changes in bank competition resulting from U.S. deregulation, we find that banks proactively increase their liquidity holdings after bank market becomes more competitive, which bolsters banks’ resilience to liquidity shocks. We argue that heightened bank competition amplifies the potential liquidity risk associated with similar liabilities, thereby necessitating banks improving their resilience to liquidity shocks.

Keywords: Bank competition; Liquidity holdings; Resilience; Liquidity risk; Liquidity shocks (search for similar items in EconPapers)
JEL-codes: E42 E50 G21 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:102:y:2025:i:c:s1059056025003739

DOI: 10.1016/j.iref.2025.104210

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