Powerful Parents? The Local Impact of Banks' Global Business Models

Powerful Parents? The Local Impact of Banks' Global Business Models

Period: 01.07.2017 – 31.12.2019

The Great Recession has shown that it is not only the size of globally active banks but also their complexity and interconnectedness that contribute to the cross-border transmission of financial crises. While there is some evidence how the crisis was transmitted via direct cross-border lending and interbank markets, the role of global banks’ internal capital markets to manage their foreign subsidiaries is not yet well understood. To adequately design new regulation with the aim to contain future crises, it is important to understand the internal workings of banks. The aim of the project is thus to answer the following research questions: How can the internal capital markets of global banks be characterized? What is the impact of differences in global banks’ internal capital markets on subsidiary lending before and during the Great Recession? Did variation in banks’ business models have tangible impacts ‘on the ground’? More precisely, did firms located close to tightly managed foreign-bank subsidiaries become more credit constrained during the crisis as compared to similar firms in localities with more independent subsidiaries? And did such credit constraints translate into real economic effects (e.g. decrease in investments or employment) for these firms? We will address these questions empirically using data from EBRD surveys at the bank and firm levels matched with the geographical locations of bank branches and firms. These data sets provide so far unavailable information on banks’ internal capital markets and allow for a detailed picture of the local banking landscape and its impact on the real economy.

Project members

Karolin Kirschenmann

Karolin Kirschenmann

Project Coordinator
Deputy

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