Internal Capital Markets and Corporate Politics in a Banking Group

K. J. Martijn Cremers; Rocco Huang; Zacharias Sautner

doi:10.1093/rfs/hhq121

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Internal Capital Markets and Corporate Politics in a Banking Group

K. J. Martijn Cremers; Rocco Huang¹; Zacharias Sautner²

¹ Michigan State University · ² University of Amsterdam

Review of Financial Studies 2011 open access

We analyze proprietary internal capital allocation data from a large retail banking group consisting of member banks and a headquarters organization. We find that capital allocations from headquarters compensate for deposit shortfalls on the bank level, suggesting that the headquarters offers deposit smoothing to member banks. We then analyze how the distribution of influence within the group relates to capital allocations and lending behavior. More influential banks are allocated more funds from headquarters, and their loan growth is less sensitive to their deposit base. The effects of influence are stronger if banks have a greater demand for deposit smoothing.

DOI: 10.1093/rfs/hhq121
Volume: 24 (2)
Pages: 358-401
Language: en
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Sources: openalex crossref