Which Way Do Foreign Branches Sway? Evidence from the Recent UK Domestic Credit Cycle

Global Financial Stability Report, October 2019

“…Home economies with substantial foreign branch presence are estimated to experience a large (0.64 standard deviations, or 21 percent) and statistically significant increase in financial system stress in response to tightening US dollar funding ( Figure 5.8, panel 2). This observation, which might be a motivating factor for the de facto tightening of branch supervision across many economies, is consistent with the literature on shock transmission through the bank channel and banks' legal entity architecture (see Chapter 1 of the April 2018 GFSR; Cetorelli and Goldberg 2012;Fiechter and others 2011;Fillat, Garetto, and Smith 2018;Hoggarth, Hooley, and Korniyenko 2013).…”

Financial integration and the Great Leveraging

“…Future research should focus on better understanding these interrelations not only because foreign capital tends to be more flighty- Hoggarth et al (2010) discuss how foreign sources of funding are typically more volatile and procyclical than domestic sources and Hoggarth et al (2013) discuss how foreign affiliates in the UK, which operate mostly using nonresident funding, were more volatile than UK-owned banks once the crisis erupted-but also because, as argued by Hahm et al (2012), noncore liabilities of banks-and therein especially external ones-are strongly associated with the vulnerability to a crisis. Future research should focus on better understanding these interrelations not only because foreign capital tends to be more flighty- Hoggarth et al (2010) discuss how foreign sources of funding are typically more volatile and procyclical than domestic sources and Hoggarth et al (2013) discuss how foreign affiliates in the UK, which operate mostly using nonresident funding, were more volatile than UK-owned banks once the crisis erupted-but also because, as argued by Hahm et al (2012), noncore liabilities of banks-and therein especially external ones-are strongly associated with the vulnerability to a crisis.…”

“…opments in credit and money. Future research should focus on better understanding these interrelations not only because foreign capital tends to be more flighty -Hoggarth et al (2010) discuss how foreign sources of funding are typically more volatile and procyclical than domestic sources and Hoggarth et al (2013) discuss how foreign affiliates in the UK, which operate mostly using nonresident funding, were more volatile than UK-owned banks once the crisis erupted-but also because, as argued by Hahm et al (2012), noncore liabilities of banks-and therein especially external ones-are strongly associated with the vulnerability to a crisis. Baeriswyl and Ganarin (2011) see the decoupling between credit and money as an opportunity to empirically test which of the two variables drives aggregate demand and inflation and thus solve the decade long dispute between the "credit view" and the "money view."…”

On a tight leash: Does bank organizational structure matter for macroprudential spillovers?

“…Multinational banks operate in foreign markets primarily under two organizational structures, a subsidiary and/or a branch. When deciding on the structural form of foreign operations, banks must consider a number of factors, including regulatory and taxation arrangements in the host countries (Fiechter, Otker-Robe, Ilyna, Hsu, Santos, and Surti, 2011) as well as factors related to the business model of the group (Hoggarth, Hooley, and Korniyenko, 2013). 1 Dell'Arrica and Marquez (2010) also consider various host country risks as important determinants in this decision making process.…”

“…Under the branch structure foreign affiliates constitute an inseparable part of the parent organization. On the contrary, subsidiaries are considered as stand-alone institutions, with their own board of directors which needs to verify and approve business decisions, making it more difficult for the parent to control a subsidiary relative to a branch (Hoggarth, Hooley, and Korniyenko, 2013;Fiechter, Otker-Robe, Ilyna, Hsu, Santos, and Surti, 2011). Therefore, the organizational form of a foreign affiliate determines the degree of control which the parent organization holds over its foreign affiliate.…”