Internal Capital Markets and Corporate Politics in a Banking Group

Review of Financial Studies, 24, 2011, 358-401

European Banking Center Discussion Paper No. 2009-15S

Yale ICF Working Paper No. 08-19

AFA 2010 Atlanta Meetings Paper

CentER Discussion Paper Series No. 2009-47S

54 Pages Posted: 31 Jul 2008 Last revised: 2 Aug 2012

Martijn Cremers

University of Notre Dame

Rocco Huang

Michigan State University - Department of Finance; Wharton Financial Institutions Center

Zacharias Sautner

Frankfurt School of Finance & Management gemeinnützige GmbH

Date Written: September 28, 2010

Abstract

We analyze proprietary internal capital allocation data from a large retail-banking group consisting of member banks and a headquarters organization. Capital allocations from headquarters compensate for deposit shortfalls at the bank level, suggesting that headquarters offers deposit smoothing to its member banks. We then analyze how the distribution of influence within the group relates to capital allocations and lending behavior. More influential banks are allocated more funds from headquarters and their loan growth is less sensitive to their deposit base. The effects of influence are stronger if banks have greater demand for deposit smoothing.

Keywords: internal capital markets, capital markets, retail banking, corporate politics

JEL Classification: G21, G31, G32, G34, M40, M46

Suggested Citation

Cremers, Martijn and Huang, Rocco and Sautner, Zacharias, Internal Capital Markets and Corporate Politics in a Banking Group (September 28, 2010). Yale ICF Working Paper No. 08-19; Review of Financial Studies, 24, 2011, 358-401 ; European Banking Center Discussion Paper No. 2009-15S; Yale ICF Working Paper No. 08-19; CentER Discussion Paper Series No. 2009-47S; AFA 2010 Atlanta Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1183802 or http://dx.doi.org/10.2139/ssrn.1183802

K. J. Martijn Cremers (Contact Author)

University of Notre Dame ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

Rocco Huang

Michigan State University - Department of Finance ( email )

315 Eppley Center
East Lansing, MI 48824-1122
United States

HOME PAGE: http://www.roccohuang.com

Wharton Financial Institutions Center

2306 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
United States

Zacharias Sautner

Frankfurt School of Finance & Management gemeinnützige GmbH ( email )

Sonnemannstraße 9-11
Frankfurt am Main, 60314
Germany

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