The Distribution of the Capital Purchase Program Funds: Evidence from Bank Internal Capital Markets
19 Pages Posted: 15 Oct 2018
Date Written: November 2018
We investigate the role played by the internal capital markets of bank holding companies in the distribution of the Capital Purchase Program funds to subsidiaries. We find that while all banks used a similar internal capital allocation to support their subsidiaries, program participants transferred more capital to their subsidiaries than nonparticipants. Smaller bank subsidiaries with lower capital and earnings received more capital than other subsidiaries. Our results support the argument that the distribution of capital was done in accordance with regulatory requirements that mandate bank holding companies to act as a source of strength for their subsidiaries.
Keywords: capital infusion, capital purchase program, internal capital markets
JEL Classification: E61, E63, G12, G14, G18
Suggested Citation: Suggested Citation