On a Tight Leash: Does Banks' Organizational Structure Matter for Macroprudential Spillovers?

31 Pages Posted: 7 Dec 2014

Date Written: November 15, 2014

Abstract

This paper examines whether the effects of changes in the intensity of macroprudential regulation vary with the organisational structure of banks. Our analysis compares the response of foreign banks’ branches vs. subsidiaries to changes in the regulation in the home country of the parent bank. Focusing on branches and subsidiaries of the same banking group allows us controlling for all the factors affecting parent bank decisions regarding its foreign affiliates lending provision. We document that following capital regulation tightening branches of multinational institutions reduce interbank lending in the UK by 6% more relative to subsidiaries of to the same banking group. However, we find no differences in lending provided to the UK’s private sector. We also find no heterogeneity in the effect of reserve requirements and lending standards.

Keywords: Macroprudential regulation, cross-border lending, credit supply, foreign banks organizational structure

JEL Classification: G21, G18, E51, E52, E44

Suggested Citation

Danisewicz, Piotr and Reinhardt, Dennis and Sowerbutts, Rhiannon, On a Tight Leash: Does Banks' Organizational Structure Matter for Macroprudential Spillovers? (November 15, 2014). Available at SSRN: https://ssrn.com/abstract=2534525 or http://dx.doi.org/10.2139/ssrn.2534525

Piotr Danisewicz (Contact Author)

University of Bristol ( email )

School of Economics, Finance and Management
The Priory Road Complex
Bristol, BS8 1TU
United Kingdom

Dennis Reinhardt

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Rhiannon Sowerbutts

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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