We model the impact of bank mergers on loan competition, reserve holdings and aggregate liquidity. A merger changes the … distribution of bank sizes and aggregate liquidity needs. Mergers among large banks tend to increase aggregate liquidity needs and … thus the public provision of liquidity through monetary operations of the central bank. …

industries, they will exploit the enhanced risk sharing opportunities through more specialization in lending. The enhanced … concentration in lending does not increase risk, because a well-functioning interbank market allows to achieve the necessary … diversification. The greater need for risk sharing through it increases, however, the risk of cross-border contagion. Better risk …