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

Research output: Contribution to journalArticle

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

Fingerprint

Commercial banks
Bank holding companies
Subsidiaries
Insolvency risk
Internal capital markets
Risk taking
Government regulation

Keywords

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

Cite this

Can Parent Protect its Children? Risk Comparison Analysis between Stand-alone Commercial Banks and Bank Holding Company’s Affiliates. / Ly, Kim Cuong; Liu, Frank Hong; Opong, Kwaku.

In: Journal of Financial Stability, Vol. 37, 08.2018, p. 1-10.

Research output: Contribution to journalArticle

@article{6b2acc720cdd4a7b97f548d27be05724,
title = "Can Parent Protect its Children? Risk Comparison Analysis between Stand-alone Commercial Banks and Bank Holding Company’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 .",
keywords = "insolvency risk, complexity, internal capital market, stand-alone banks, bank holding companies affilaites",
author = "Ly, {Kim Cuong} and Liu, {Frank Hong} and Kwaku Opong",
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",
month = "8",
doi = "10.1016/j.jfs.2018.05.001",
language = "English",
volume = "37",
pages = "1--10",
journal = "Journal of Financial Stability",

}

TY - JOUR

T1 - Can Parent Protect its Children? Risk Comparison Analysis between Stand-alone Commercial Banks and Bank Holding Company’s Affiliates

AU - Ly, Kim Cuong

AU - Liu, Frank Hong

AU - Opong, Kwaku

N1 - 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.

PY - 2018/8

Y1 - 2018/8

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

U2 - 10.1016/j.jfs.2018.05.001

DO - 10.1016/j.jfs.2018.05.001

M3 - Article

VL - 37

SP - 1

EP - 10

JO - Journal of Financial Stability

JF - Journal of Financial Stability

ER -