Document Type
Article
Publication Date
12-5-2017
Abstract
We analyze theoretically banks’ choice of organizational structures in branches, subsidiaries or stand-alone banks, in the presence of public bailouts and default costs. These structures are characterized by different arrangements for internal rescue of affiliates against default. The cost of debt and leverage are endogenous. For moderate bailout probabilities, subsidiary structures, wherein the two entities provide mutual internal rescue under limited liability, have the highest group value, but also the highest risk taking as measured by leverage and expected loss. We explore the effect of constraints on leverage and policy implications. The conflict of interests between regulators, who minimize systemic risk, and banks, who maximize their own value, is mitigated when capital requirements are effective.
Recommended Citation
Luciano, E., & Wihlborg, C. (2017). Financial Synergies and Systemic Risk in the Organization of Bank Affiliates. Journal of Banking and Finance, 88, 208-224. doi: 10.1016/j.jbankfin.2017.11.011
Peer Reviewed
1
Copyright
Elsevier
Creative Commons License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.
Included in
Finance and Financial Management Commons, Organizational Behavior and Theory Commons, Other Business Commons
Comments
NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Banking and Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Banking and Finance, volume 88, in 2017. DOI: 10.1016/j.jbankfin.2017.11.011
The Creative Commons license below applies only to this version of the article.