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The corporate structure of multinational banks

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  • Morrison, Alan
  • Lóránth, Gyöngyi

Abstract

Multinational banks are increasingly subject to centralised supervision that relies upon precise aggregation and consolidation of risk data from all of their constituent parts. We present a model of organisational form for multinational bank expansion within which we can consider this trend. In our model, multinational banks design their corporate form so as to control the granularity of internal information flows. Genuine delegation to subsidiary banks is feasible because they report less precise information to home banks. Home banks can therefore use subsidiary expansion to commit ex ante to accept projects that may ex post be unattractive. That commitment comes at the cost of higher expected compensation costs; branch banks guarantee better information flows and so allow for more precise incentive contracts. Centralization of supervision mitigates the benefit of subsidiaries for the home bank and may result in credit rationing to small and medium-sized companies in host countries. Our model explains the closer engagement of subsidiaries in host countries and yields several testable implications.

Suggested Citation

  • Morrison, Alan & Lóránth, Gyöngyi, 2018. "The corporate structure of multinational banks," CEPR Discussion Papers 12688, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12688
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    References listed on IDEAS

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    1. Jonathan Fiechter & Inci Ötker & Anna Ilyina & Michael Hsu & Andre O Santos & Jay Surti, 2011. "Subsidiaries or Branches; Does One Size Fit All?," IMF Staff Discussion Notes 11/04, International Monetary Fund.
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    5. Thomas Harr & Thomas Rønde, 2006. "Regulation of Banking Groups," FRU Working Papers 2006/01, University of Copenhagen. Department of Economics. Finance Research Unit.
    6. International Monetary Fund, 2010. "Risk and the Corporate Structure of Banks," IMF Working Papers 2010/040, International Monetary Fund.
    7. Jonathan Fiechter & Ms. Inci Ötker & Ms. Anna Ilyina & Michael Hsu & Mr. Andre O Santos & Jay Surti, 2011. "Subsidiaries or Branches: Does One Size Fit All?," IMF Staff Discussion Notes 2011/004, International Monetary Fund.
    8. Giacomo Calzolari & Jean-Edouard Colliard & Gyongyi Lóránth, 2019. "Multinational Banks and Supranational Supervision," The Review of Financial Studies, Society for Financial Studies, vol. 32(8), pages 2997-3035.
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    More about this item

    Keywords

    Multinational banks; Branch; Subsidiary; Information flows;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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