Can Parent Protect its Children? Risk Comparison Analysis between Stand-alone Commercial Banks and Bank Holding Company’s Affiliates

Kim Cuong Ly, Frank Hong Liu, Kwaku Opong

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Abstract

We find that multi-bank holding companies (MBHCs) in the U.S. have lower insolvency risk than single-bank holding companies (SBHCs) at the parent level, but have significantly higher insolvency risk than the latter at the subsidiary level. Our results suggest that MBHC parents tend to benefit from the internal capital market, while allowing for more risk taking at the individual levels. We further find that the higher risk for MBHC affiliates is because of the organizational and geographic complexity at the MBHC parent level. Our results highlight the importance of government regulation on banks at both parent and subsidiary levels .
Original languageEnglish
Pages (from-to)1-10
Number of pages10
JournalJournal of Financial Stability
Volume37
Early online date5 May 2018
DOIs
Publication statusPublished - Aug 2018

Keywords

  • insolvency risk
  • complexity
  • internal capital market
  • stand-alone banks
  • bank holding companies affilaites

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