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Centralized versus decentralized drivers of subsidiary lending: evidence from US Call Reports

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Abstract

This paper demonstrates that the financial conditions of US subsidiaries, and not those of their owners, have been the primary drivers of their lending since the mid-1990s. This evidence is obtained by using a large number of bank-level observations from US Call Reports. The ownership structure inferred from these data allows for a unique identification strategy that determines the independent effects of subsidiary-specific and owner-specific financial conditions on subsidiaries’ lending. The results show that subsidiaries’ financial conditions were, in general, more important for lending decisions than those of their owners in the past two decades. Considering a broad set of factors with systematic effects on financial markets, the paper also finds that these so-called push factors influence subsidiaries’ lending mainly through their own financial conditions and not those of their owners.

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Notes

  1. See Crystal et al. (2002), Dages et al. (2000), De Haas and Van Lelyveld (2006), Goldberg (2002), Martinez et al. (2002) and Peek and Rosengren (2000).

  2. Conlon and Cotter (2019) and Karamichailidou and Mayes (2016) provide an extensive review of the differences between a single point entry bankruptcy resolution (a more universal approach that focuses on the parent bank) and a multiple points entry resolution (a more territorial approach that focuses on the subsidiaries). The authors point out the growing emphasis on subsidiaries for internationally active banks in the past decade. For banks that only lend domestically, especially in the USA and after 2008, bankruptcy resolution follows a single point entry model.

  3. The evidence suggests that management practices within banks’ internal network have remained symmetric with a high degree of information sharing and common risk management practices. This indicates that the decentralization of banking is not due to management practices (e.g., Avdjiev and Takáts 2016).

  4. Research on monetary transmission typically includes 8 lags of the monetary policy stance variable. While I do not study monetary transmission, I did replicate my analysis with 8 lags. The results, available upon request, were qualitatively similar.

  5. Structural and performance ratios are reported explicitly after 2011, for example. My approach, summarized above, allows for a more consistent analysis across the historical periods that I consider.

  6. I use the steps in Roodman (2009) to execute this methodology in STATA.

  7. I use the Hansen test statistic rather than the Sargan test statistic since the latter is not robust to heteroscedasticity and autocorrelation in large panels such as the one that I use in this paper.

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  1. Department of Economics, College of Business Administration, University of Central Florida, 4000 Central Florida Blvd., Orlando, FL, 32816-1991, USA

    Uluc Aysun

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  1. Uluc Aysun
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Appendix A: Data

Appendix A: Data

See Table 10.

Table 10 Data sources and definitions
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Aysun, U. Centralized versus decentralized drivers of subsidiary lending: evidence from US Call Reports. Empir Econ 62, 1687–1714 (2022). https://doi.org/10.1007/s00181-021-02070-y

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