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Internal Capital Markets and Corporate Politics in a Banking Group

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  • K. J. Martijn Cremers
  • Rocco Huang
  • Zacharias Sautner
Abstract
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. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org., Oxford University Press.

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  • K. J. Martijn Cremers & Rocco Huang & Zacharias Sautner, 2011. "Internal Capital Markets and Corporate Politics in a Banking Group," The Review of Financial Studies, Society for Financial Studies, vol. 24(2), pages 358-401.
    • Handle: RePEc:oup:rfinst:v:24:y:2011:i:2:p:358-401
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    File URL: http://hdl.handle.net/10.1093/rfs/hhq121
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