On a Tight Leash: Does Bank Organisational Structure Matter for Macroprudential Spillovers?

34 Pages Posted: 27 Feb 2015

Date Written: February 20, 2015

Abstract

This paper examines whether cross-border spillovers of macroprudential regulation depend on the organisational structure of banks’ foreign affiliates. Our analysis compares the response of foreign banks’ branches versus subsidiaries in the United Kingdom to changes in macroprudential regulations in foreign banks’ home countries. By focusing on branches and subsidiaries of the same banking group, we are able to control for all the factors affecting parent banks’ decisions regarding the lending of their foreign affiliates. We document that there are important differences between the type of regulation and the type of lending. Following a tightening of capital regulation, branches of multinational banks reduce interbank lending growth by 6 percentage points more relative to subsidiaries of the same banking group. Lending to non-banks does not exhibit such differences. A tightening in lending standards or reserve requirements at home does not have differential effects on both interbank and non-bank lending in the United Kingdom.

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

JEL Classification: G21, G28, E51, E58

Suggested Citation

Danisewicz, Piotr and Reinhardt, Dennis and Sowerbutts, Rhiannon, On a Tight Leash: Does Bank Organisational Structure Matter for Macroprudential Spillovers? (February 20, 2015). Bank of England Working Paper No. 524. Available at SSRN: https://ssrn.com/abstract=2570033 or http://dx.doi.org/10.2139/ssrn.2570033

Piotr Danisewicz

University of Bristol ( email )

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

Dennis Reinhardt (Contact Author)

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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