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What’s Different about Bank Holding Companies?

Author

Listed:
  • Mr. Ralph Chami
  • Mr. Thomas F. Cosimano
  • Jun Ma
  • Ms. Celine Rochon

Abstract

The recent fnancial crisis highlighted the role of Bank Holding Companies (BHCs) in exacerbating the crisis and in transmitting monetary policy beyond the local economy to global markets. Yet, little is known about their behavior, as most models of banking typically focus on banks with a loan desk. We develop a dynamic model of a BHC that encompasses both a trading desk and a loan desk, and explore the role of risk attitude and overleveraging by the trading desk. We trace the impact of monetary policy and market innovations on bank behavior in the presence of Basel III type regulations. To our knowledge, this is a first such exercise. We show that the value of the BHC is enhanced by operating both desks, even if they both are subject to common market shocks. We explore alternative regulatory remedies to ongoing efforts to ring-fence the proprietary trading business, and show that regulations that target bank governance can mitigate possible rogue trading and the overleveraging problem.

Suggested Citation

  • Mr. Ralph Chami & Mr. Thomas F. Cosimano & Jun Ma & Ms. Celine Rochon, 2017. "What’s Different about Bank Holding Companies?," IMF Working Papers 2017/026, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2017/026
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    Cited by:

    1. van der Ploeg, Lidewij & Vanclay, Frank, 2018. "Challenges in implementing the corporate responsibility to respect human rights in the context of project-induced displacement and resettlement," Resources Policy, Elsevier, vol. 55(C), pages 210-222.
    2. Yung, Julieta, 2021. "Can interest rate factors explain exchange rate fluctuations?," Journal of Empirical Finance, Elsevier, vol. 61(C), pages 34-56.
    3. Cao, Ting & Cook, Wade D. & Kristal, M. Murat, 2022. "Has the technological investment been worth it? Assessing the aggregate efficiency of non-homogeneous bank holding companies in the digital age," Technological Forecasting and Social Change, Elsevier, vol. 178(C).
    4. Martynova, Natalya & Ratnovski, Lev & Vlahu, Razvan, 2020. "Bank profitability, leverage constraints, and risk-taking," Journal of Financial Intermediation, Elsevier, vol. 44(C).
    5. Behn, Markus & Daminato, Claudio & Salleo, Carmelo, 2019. "A dynamic model of bank behaviour under multiple regulatory constraints," Working Paper Series 2233, European Central Bank.
    6. Kudret Topyan & Chia-Jane Wang & Natalia Boliari & Carlos Elias, 2024. "Credit Risk Management and US Bank-Holding Companies: An Empirical Investigation," JRFM, MDPI, vol. 17(2), pages 1-11, January.

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