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Internal Capital Markets and Lending by Multinational Bank Subsidiaries

  • Ralph de Haas
  • Iman van Lelyveld

We use panel data on the intra-group ownership structure and balance sheets of 45 of the largest banking groups from 1992 to 2004 to analyse what determines the credit growth of multinational bank subsidiaries. Both home- and host-country conditions and characteristics of the subsidiaries themselves and their parent banks are taken into account. We find that the lending of multinational bank subsidiaries is influenced by substitution effects, in which parent banks trade-off lending in several countries, as well as support effects, in which parent banks support weak subsidiaries. This provides strong evidence for the existence of internal capital markets through which multinational banks manage the credit growth of their subsidiaries. We also find that greenfield subsidiaries are more closely integrated into internal capital markets than subsidiaries that result from a take-over.

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Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 101.

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Date of creation: Jun 2006
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Handle: RePEc:dnb:dnbwpp:101
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