The Organization of Bank Affiliates; A Theoretical Perspective on Risk and Efficiency
We analyze theoretically banks choice of organization and leverage in branches or subsidiaries in the presence of organizational and financial synergies, government bailouts, bankruptcy costs and varying correlations between risk-factors. The social efficiency of banks’ choices are analyzed as well taking into account operational synergies and distortions caused by banks’ exploitation of benefits of limited liability if there is a probability of governments bail-out. Leverage choice can be viewed as a trade-off between expected benefits of limited liability and bankruptcy costs. The choice of subsidiary vs branch organization can be viewed as a trade-off between organizational synergies and bankruptcy costs and this tradeoff depends on other factors mentioned. The theoretical and numerical analysis has a number of policy implications. We emphasize the role of capital requirements, explicit and implicit protection of banks’ creditors, restrictions on organizational choice with different synergies, insolvency procedures for banks affecting private and social costs associated with a bank’s insolvency
|Date of creation:||May 2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +39 011 6706060
Fax: +39 011 6706062
Web page: http://www.esomas.unito.it/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Clas Wihlborg, 2012.
"Developing Distress Resolution Procedures for Financial Institutions,"
SUERF - The European Money and Finance Forum, number 2012/5.
- Clas Wihlborg, 2012. "Developing Distress Resolution Procedures for Financial Institutions," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
- Chiesa, Gabriella, 2008.
"Optimal credit risk transfer, monitored finance, and banks,"
Journal of Financial Intermediation,
Elsevier, vol. 17(4), pages 464-477, October.
- Gabriella Chiesa, 2008. "Optimal Credit Risk Transfer, Monitored Finance, and Banks," EIEF Working Papers Series 0811, Einaudi Institute for Economics and Finance (EIEF), revised Sep 2008.
- Sarig, Oded H., 1985. "On Mergers, Divestments, and Options: A Note," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 20(03), pages 385-389, September.
- Jeon, Bang Nam & Olivero, María Pía & Wu, Ji, 2013.
"Multinational banking and the international transmission of financial shocks: Evidence from foreign bank subsidiaries,"
Journal of Banking & Finance,
Elsevier, vol. 37(3), pages 952-972.
- Jeon, Bang & Olivero, María & Wu, Ji, 2012. "Multinational Banking and the International Transmission of Financial Shocks: Evidence from Foreign Bank Subsidiaries," School of Economics Working Paper Series 2012-2, LeBow College of Business, Drexel University.
- Cerutti, Eugenio & Dell'Ariccia, Giovanni & Martinez Peria, Maria Soledad, 2005.
"How banks go abroad : branches or subsidiaries ?,"
Policy Research Working Paper Series
3753, The World Bank.
- Adam B. Ashcraft, 2004.
"Are bank holding companies a source of strength to their banking subsidiaries?,"
189, Federal Reserve Bank of New York.
- Adam B. Ashcraft, 2008. "Are Bank Holding Companies a Source of Strength to Their Banking Subsidiaries?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(2-3), pages 273-294, 03.
- Merton, Robert C., 1973.
"On the pricing of corporate debt: the risk structure of interest rates,"
684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-70, May.
- Giovanni Dell'Ariccia & Robert Marquez, 2010.
"Risk and the Corporate Structure of Banks,"
Journal of Finance,
American Finance Association, vol. 65(3), pages 1075-1096, 06.
- Elisa Luciano & Giovanna Nicodano, 2008. "Intercorporate guarantees, leverage and taxes," Carlo Alberto Notebooks 95, Collegio Carlo Alberto, revised 2010.
- Elisa Luciano & Giovanna Nicodano, 2012. "Default risk in business groups," Carlo Alberto Notebooks 283, Collegio Carlo Alberto.
- Castiglionesi, Fabio & Wagner, Wolf, 2013. "On the efficiency of bilateral interbank insurance," Journal of Financial Intermediation, Elsevier, vol. 22(2), pages 177-200.
When requesting a correction, please mention this item's handle: RePEc:icr:wpicer:06-2013. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Simone Pellegrino)
If references are entirely missing, you can add them using this form.