This paper examines whether multinational banks have a stabilizing or a destabilizing role during times of ﬁnancial distress. With a focus on Europe, it looks at how these banks’ foreign afﬁliates have been faring during the recent ﬁnancial crisis. It ﬁnds that retail and corporate lending of these foreign afﬁli- ates has been stable and even increasing between 2007 and 2009. This pattern is related to the functioning of the internal capital market through which these banks funnel funds across their units. The internal capital market has been an effective tool to support foreign afﬁliates in distress and to isolate their lending from the local availability of ﬁnancial resources, notwithstanding the systemic nature of the recent crisis. This effect has been particularly large within the EU integrated ﬁnancial market and for the EMU countries, thus showing complementarity between economic integration and multinational banks’ internal capital markets. In light of these ﬁndings, this paper supports the call for an integration of the European supervisory and regulatory framework over- seeing multinational banks. The analysis is based on an analytical framework which derives the main conditions under which the internal capital market can perform this support function under idiosyncratic and systemic stresses. The empirical evidence uses both aggregate evidence on foreign claims worldwide, and ﬁrm-level evidence on the behaviour of banking groups’ afﬁliates, compared to stand-alone national banks.
|Digital Object Identifier (DOI):||10.1111/j.1468-0327.2010.00254.x|
|Codice identificativo ISI:||000282572100004|
|Codice identificativo Scopus:||2-s2.0-78650438619|
|Appare nelle tipologie:||1.1 Articolo in rivista|