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On a tight leash: Does bank organizational structure matter for macroprudential spillovers?

Research output: Contribution to journalArticle

Original languageEnglish
Pages (from-to)174-194
Number of pages21
JournalJournal of International Economics
Volume109
Early online date3 Oct 2017
DOIs
DateAccepted/In press - 13 Sep 2017
DateE-pub ahead of print - 3 Oct 2017
DatePublished (current) - Nov 2017

Abstract

This paper examines whether the organizational form of multinational banks' foreign affiliates affects cross-border spillovers of macroprudential regulation. We compare changes in the growth of lending provided by foreign banks' branches versus subsidiaries in the United Kingdom in response to changes in capital requirements, lending standards and reserve requirements in foreign banks' home countries. Our results suggest that a tightening of capital requirements at home reduces UK branches' interbank lending growth by 5.7 pp more relative to subsidiaries. We link this effect to the higher degree of control which parent banks hold over operations of their foreign branches compared to subsidiaries. Supporting this hypothesis, a set of further tests illustrates that the response of foreign affiliates operating under a branch structure is stronger where parent banks are more likely to delegate more decision making authority to the board of directors of their subsidiaries.

    Research areas

  • Macroprudential regulation, cross-border lending, credit supply, foreign banks’ organizational structure

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  • Full-text PDF (accepted author manuscript)

    Rights statement: This is the author accepted manuscript (AAM). The final published version (version of record) is available online via Elsevier at https://www.sciencedirect.com/science/article/pii/S0022199617301198 . Please refer to any applicable terms of use of the publisher.

    Accepted author manuscript, 412 KB, PDF document

    Licence: CC BY-NC-ND

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