74 Pages Posted: 22 Dec 2014 Last revised: 26 Jan 2019
Date Written: January 2019
Using data on Spanish mutual funds, we show that bank-affiliated funds provide funding support to their parent company via purchases of bonds in the primary market. Funding from affiliated funds increases when it is most valuable, i.e., in times of financial stress and to riskier banks with limited access to funding. Funding support is not limited to bonds but also takes place through bank deposits and purchases of short-term paper. These trades benefit banks at the expense of their affiliated mutual fund investors. To minimize the negative impact on their asset management business, banks steer funding support towards funds without a performance fee and funds that cater to the less-performance sensitive investors. Finally, we provide evidence that the ability to use affiliated funds as a source of funding enabled Spanish banks to limit credit rationing to the nonfinancial sector during the 2008-2012 period.
Keywords: Financial Conglomerates, Mutual Funds, Agency Conflicts, Financial Crisis, Sovereign Debt Crisis
JEL Classification: G23, G32, G21
Suggested Citation: Suggested Citation