XXV Edition

1-2 December 2016"

Can Parents Protect Their Children? Risk Comparison Analysis between Stand-Alone Commercial Banks and Bank Holding Companies’ Affiliates

Ly Kim Cuong, University of Glasgow
Liu Frank Hong, University of Glasgow
Opong Kwaku , University of Glasgow

We find that multi-bank holding companies (MBHCs) in the U.S. have lower insolvency risk than single-bank holding companies (SBHCs) at the parent level, but have significantly higher insolvency risk than the latter at the subsidiary level. These results suggest that MBHC affiliates face insolvency risks resulting from the increased complexity if the number of subsidiaries in MBHCs increases. MBHC parents tend to manipulate the internal capital market in order to achieve safety at the parent level. The implication of the results is that regulators should devote particular effort to regulating banks at the subsidiary levels to restrict their risk-taking behavior.

Area: Young Economists Session (YES award)

Keywords: insolvency risk; complexity; internal capital market; diversification; bank holding companies’ affiliates

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