The Finance Brown Bag Seminar is held by the Institute for Finance, Banking and Insurance (WU Vienna) and the Vienna Graduate School of Finance (VGSF). It serves as a presentation platform for PhD students, faculty members, and visitors. An overview of BBS on the website of the Institute for Finance, Banking and Insurance.
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Jennie Bai, Georgetown University and NBER
Loan-funded Loans: Asset-like Liabilities inside Bank Holding Companies
Leveraging unique regulatory data on internal fund flows between bank holding companies (BHCs) and their subsidiaries, this paper investigates the role of internal loans as an underexplored source of liquidity for commercial banks. Unlike traditional deposits, internal loans serve as asset‐like liabilities that offer banks a stable funding alternative. Our results show that banks with access to internal funding engage more aggressively in the syndicated lending market, originating larger loans with longer maturities and lower spreads while expanding relationships with new, marginal, often financially constrained borrowers. Although these bank subsidiaries exhibit higher non‐performing loan ratios, the aggregate impact of internal loans on performance is positive. We also show how internal capital allocation decisions differ between bank and nonbank subsidiaries, with nonbanks receiving increasingly preferential treatment over time. Our findings underscore the critical importance of internal capital markets in shaping bank behavior and influencing credit access in the economy while undermining the transmission of monetary policy.
