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The distribution of the Capital Purchase Program funds: Evidence from bank internal capital markets
Author(s) -
Mukherjee Tarun,
Pana Elisabeta
Publication year - 2018
Publication title -
financial markets, institutions and instruments
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.386
H-Index - 23
eISSN - 1468-0416
pISSN - 0963-8008
DOI - 10.1111/fmii.12095
Subject(s) - subsidiary , business , mandate , capital adequacy ratio , capital (architecture) , financial system , financial capital , distribution (mathematics) , earnings , economic capital , finance , monetary economics , economics , market economy , human capital , archaeology , multinational corporation , political science , law , history , incentive , mathematical analysis , mathematics
We investigate the role played by the internal capital markets of bank holding companies in the distribution of the Capital Purchase Program funds to subsidiaries. We find that while all banks used a similar internal capital allocation to support their subsidiaries, program participants transferred more capital to their subsidiaries than nonparticipants. Smaller bank subsidiaries with lower capital and earnings received more capital than other subsidiaries. Our results support the argument that the distribution of capital was done in accordance with regulatory requirements that mandate bank holding companies to act as a source of strength for their subsidiaries.