| By: |
Gropp, Reint;
Radev, Deyan |
| Abstract: |
We investigate how solvency and wholesale funding shocks to 84 OECD parent
banks affect the lending of 375 foreign subsidiaries. We find that parent
solvency shocks are more important than wholesale funding shocks for
subsidiary lending. Furthermore, we find that parent undercapitalization does
not affect the transmission of shocks, while wholesale shocks transmit to
foreign subsidiaries of parents that rely primarily on wholesale funding. We
also find that transmission is affected by the strategic role of the
subsidiary for the parent and follows a locational, rather than an
organizational pecking order. Surprisingly, liquidity regulation exacerbates
the transmission of adverse wholesale shocks. We further document that parent
banks tend to use their own capital and liquidity buffers first, before
transmitting. Finally, we show that solvency shocks have higher impact on
large subsidiary banks with low growth opportunities in mature markets. |
| Keywords: |
commercial banks,global banks,wholesale shocks,solvency shocks,transmission,internal capital markets |
| JEL: |
G01 G21 G28 |
| Date: |
2017 |
| URL: |
http://d.repec.org/n?u=RePEc:zbw:safewp:175&r=ifn |