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Competition for internal funds within multinational banks: Foreign affiliate lending in the crisis

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  • Düwel, Cornelia
  • Frey, Rainer
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    Abstract

    We investigate how the lending activities of a multinational bank's affiliates located abroad are affected by funding difficulties in view of the financial crisis. For this, we consider transaction-induced changes in long-term lending to the private sector of 40 countries by the affiliates of the 68 largest German banks. We find that affiliates' local deposits and profitability have been stabilizing loan supply. By contrast, relying on short-term wholesale funding has increasingly proven to be a disadvantage in the crisis, as inter-bank and capital markets froze. Besides, the more an affiliate abroad takes recourse to intra-bank funding in the crisis, the more it becomes dependent on a stable deposit and long-term wholesale funding position of its parent bank. We furthermore detect competition for intra-bank funding across the affiliates abroad as well as an increasing focus on the parent bank's home market activities. --

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    Bibliographic Info

    Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Papers with number 19/2012.

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    Date of creation: 2012
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    Handle: RePEc:zbw:bubdps:192012

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    Keywords: funding structure; multinational banks; internal capital market; intra-bank lending; wholesale funding; financial crisis;

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    1. Giorgio Barba Navaretti & Giacomo Calzolari & Alberto Franco Pozzolo & Micol Levi, 2010. "Multinational banking in Europe - financial stability and regulatory implications: lessons from the financial crisis," Economic Policy, CEPR & CES & MSH, vol. 25, pages 703-753, October.
    2. Düwel, Cornelia & Frey, Rainer & Lipponer, Alexander, 2011. "Cross-border bank lending, risk aversion and the financial crisis," Discussion Paper Series 1: Economic Studies 2011,29, Deutsche Bundesbank, Research Centre.
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