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

doi:10.1016/j.jfs.2018.05.001

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

Economics

Research output: Contribution to journal › Article › peer-review

12 Citations (Scopus)

4 Downloads (Pure)

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 language	English
Pages (from-to)	1-10
Number of pages	10
Journal	Journal of Financial Stability
Volume	37
Early online date	5 May 2018
DOIs	https://doi.org/10.1016/j.jfs.2018.05.001
Publication status	Published - Aug 2018

Bibliographical note

Authors are grateful for helpful comments from Iftekhar Hasan (editor) and referees to improve the paper. We would like to thank Mingming Zhou and conference attendees at the 2016 MBF Conference, the 7th International Research Meeting in Business and Management, International Rome Conference on Money, Banking and Finance 2016, the 13th INFINITI Conference on International Finance 2015, the BAFA Annual conference 2015, the 4th International Conference of the Financial Engineering and Banking Society 2014, Scottish Doctoral Colloquium in Accounting and Finance 2014, as well as participants at the internal seminar at University of Glasgow, Jonkoping University (Sweden) and Swansea University for their helpful comments.

Keywords

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

Access to Document

10.1016/j.jfs.2018.05.001Licence: Unspecified

Accepted Manuscript
© 2018. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
Accepted author manuscript, 641 KBLicence: CC BY-NC-ND

Cite this

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title = "Can Parent Protect its Children? Risk Comparison Analysis between Stand-alone Commercial Banks and Bank Holding Company{\textquoteright}s Affiliates",

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 . ",

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note = "Authors are grateful for helpful comments from Iftekhar Hasan (editor) and referees to improve the paper. We would like to thank Mingming Zhou and conference attendees at the 2016 MBF Conference, the 7th International Research Meeting in Business and Management, International Rome Conference on Money, Banking and Finance 2016, the 13th INFINITI Conference on International Finance 2015, the BAFA Annual conference 2015, the 4th International Conference of the Financial Engineering and Banking Society 2014, Scottish Doctoral Colloquium in Accounting and Finance 2014, as well as participants at the internal seminar at University of Glasgow, Jonkoping University (Sweden) and Swansea University for their helpful comments. ",

year = "2018",

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language = "English",

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AU - Liu, Frank Hong

AU - Opong, Kwaku

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N2 - 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 .

AB - 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 .

KW - insolvency risk

KW - complexity

KW - internal capital market

KW - stand-alone banks

KW - bank holding companies affilaites

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DO - 10.1016/j.jfs.2018.05.001

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JO - Journal of Financial Stability

JF - Journal of Financial Stability

ER -

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

Abstract

Bibliographical note

Keywords

Access to Document

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Cite this