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Internal capital markets and lending by multinational bank subsidiaries

  • Ralph De Haas

    ()

    (European Bank for Reconstruction and Development)

  • Iman Van Lelyveld

    (De Nederlandsche Bank)

A defining feature of the banking systems in many transition countries is the large-scale presence of subsidiaries of multinational banks. We use new panel data on the intra-group ownership structure and the balance sheets of 45 of the largest banking groups in the world to analyse what determines the credit growth of their subsidiaries, many of which are in central and eastern Europe. We find that parent banks trade-off lending across several countries (“substitution effect”) and that they support weak subsidiaries (“support effect”). This provides evidence for the existence of internal capital markets through which multinational banks manage the credit growth of their subsidiaries. Greenfield subsidiaries are most closely integrated into such internal capital markets.

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Paper provided by European Bank for Reconstruction and Development, Office of the Chief Economist in its series Working Papers with number 105.

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Length: 35 pages
Date of creation: Feb 2008
Date of revision:
Publication status: Published in De Haas, R.T.A. and I.P.P. van Lelyveld (2010), Internal capital market and lending by multinational bank subsidiaries, Journal of Financial Intermediation, 19, 1-25.
Handle: RePEc:ebd:wpaper:105
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Web page: http://www.ebrd.com/pages/research/publications/workingpapers.shtml

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