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Internal Capital Markets in Financial Conglomerates: Evidence from Small Bank Responses to Monetary Policy
Author(s) -
Campello Murillo
Publication year - 2002
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/1540-6261.00512
Subject(s) - capital market , financial capital , financial system , business , financial market , capital (architecture) , monetary economics , monetary policy , investment (military) , capital allocation line , economics , finance , market economy , human capital , archaeology , politics , political science , law , history , incentive
This paper looks at internal capital markets in financial conglomerates by comparing the responses of small subsidiary and independent banks to monetary policy. I find that internal capital markets in financial conglomerates relax the credit constraints faced by smaller bank affiliates. Further analysis indicates that those markets lessen the impact of Fed policies on bank lending activity. The paper also examines the role of internal capital markets in influencing the investment allocation process of those conglomerates. My findings suggest that frictions between conglomerate headquarters and external capital markets are at the root of investment inefficiencies generated by internal capital markets.