We use new panel data on the intra-group ownership structure and the balance sheets of 45 of the largest multinational bank holdings to analyze what determines the credit growth of their subsidiaries. We find evidence for the existence of internal capital markets through which multinational banks manage the credit growth of their subsidiaries. Multinational bank subsidiaries with financially strong parent banks are able to expand their lending faster. As a result of parental support, foreign bank subsidiaries also do not need to rein in their credit supply during a financial crisis, while domestic banks need to do so.

We use detailed data on over 350 banks in emerging Europe to analyze how bank ownership and the Vienna Initiative impacted credit growth during the Great Recession. As part of the Vienna Initiative, western European banks signed country-specific commitment letters in which they pledged to maintain exposures and to support their subsidiaries in emerging Europe. We show that while both domestic and foreign banks sharply curtailed credit during the financial crisis, foreign banks that participated in the Vienna Initiative were relatively stable lenders. We find no evidence of negative spillovers from countries where banks signed commitment letters to countries where they did not.