Lobbying and liquidity requirements: Large versus small banks

We design a model with banks of unequal size operating subject to liquidity requirements in an imperfectly-competitive deposit market. We show that large banks have stronger incentives than small ones to lobby in order to relax the liquidity requirements unless they bear significantly higher lobbyin...

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Bibliographic Details
Published in:Journal of financial stability Vol. 74; p. 101316
Main Authors: Shy, Oz, Stenbacka, Rune
Format: Journal Article
Language:English
Published: Elsevier B.V 01.10.2024
Subjects:
Bank associations
Bank competition
Bank lobbying
Deposit rates
Required liquid reserves
Bank competition
Deposit rates
G21
Bank lobbying
Required liquid reserves
Bank associations
G28
D72
ISSN:1572-3089
Online Access:Get full text
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Summary:We design a model with banks of unequal size operating subject to liquidity requirements in an imperfectly-competitive deposit market. We show that large banks have stronger incentives than small ones to lobby in order to relax the liquidity requirements unless they bear significantly higher lobbying costs. Therefore, lobbying magnifies asymmetries between banks. Furthermore, we establish that the organization of influence activities matters. An industry-wide bank association for lobbying to relax the liquidity requirements suffers from an internal conflict of interest and cannot simultaneously benefit both large and small banks if these have identical lobbying cost functions.
ISSN:1572-3089
DOI:10.1016/j.jfs.2024.101316