Using comprehensive measures of bank liquidity creation by Berger and Bouwman (2009), I investigate empirically whether bank competition affects bank liquidity creation among 16367 banks from 1984 to 2007. I find that bank-level competition affercts bank's liquidity creation strategy. Using bank-level competition measure, I find that banks create less liquidity when the market is more competitive. Exploiting intra- and interstate bank deregulations and interstate bank branching deregulation, I find that banks create less liquidity as interstate branching restrictions release but banks do not significantly respond to intra- and interstate banking deregulation. Surprisingly, different from bank-level analysis, state-level analysis shows that bank deregulation events do not significantly affect state-level bank liquidity creation on average. The results highlight the role of proper regulation to encourage depressed credit market in the United States.

Keywords: Bank Competition, Bank Liquidity Creation, Deregulation, Government Regulation

JEL Classification: G21, G28, G32