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Social centralization, bank integration and the transmission of lending shocks

Reint Gropp and Deyan Radev

No 174, SAFE Working Paper Series from Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt

Abstract: We introduce an innovative approach to measure bank integration, based on the corporate culture of multinational banking conglomerates. The new measure, the Power Index, assesses the prevalence of a language of power and authority in the financial reports of global banks. We employ a two-step approach: as a first step, we investigate whether parent-bank or parent-country characteristics are more important for bank integration. In a second step, we analyze whether bank integration affects the transmission of shocks across borders. We find that the level of integration of global banks is determined by parent-bank-specific factors, as well as by the social centralization in the parent's country: ethnically diverse and linguistically homogenous countries nurture decentralized corporate structures. Political and economic factors, such as corruption, political rights and economic development also affect bank integration. Furthermore, we find that organizational integration affects the transmission of exogenous shocks from parent banks to their subsidiaries: the more centralized a global bank is, the lower the lending of its subsidiaries after a solvency shock. Wholesale shocks do not appear to be transmitted through this channel. Also, past experience with solvency shocks reduces the integration between parents and subsidiaries.

Keywords: global banks; social centralization; bank integration; shocks; transmission (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:174

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