Working Papers
Parent Company Debt and Subsidiary Bank's Risk-taking: Evidence from Large Bank Holding Companies (with Kebin Ma, David R. Skeie, and Jianlin Wang)
We investigate the influence of the parent company's capital structure of a bank holding company's (BHC) on the risk-taking behavior of its subsidiary banks, taking into account the BHC's organizational structure. Our analysis shows that increased parent debt is associated with reduced risk-taking by subsidiary banks. This effect is particularly prominent in BHCs with significant non-bank business, which would give the parent company greater incentives to constrain risk-taking in the subsidiary bank to prevent any spillover of loss. These findings highlight the need to consider the capital structures of the subsidiary, the parent, and the overall BHC—as well as the organizational structure—when assessing a subsidiary bank’s risk profile.
Monetary Policy and Deposit Beta: The Role of Internal Capital Market (with Kebin Ma, and David R. Skeie)
We propose a new mechanism — the internal capital market channel(ICM), proxied by the parent debt ratio — to explain how monetary policy influences subsidiary banks’ deposit rate setting, measured primarily through the deposit beta. Our key finding is that a higher parent debt ratio is associated with a lower deposit beta. This result suggests that the ICM within a bank holding company (BHC) plays an important role in monetary policy transmission by enabling the transfer of funds from parent companies to their subsidiary banks. Such internal transfers reduce subsidiaries’ reliance on deposit funding and, consequently, weaken the sensitivity of deposit interest rates to the federal funds rate. Moreover, parent company debt can serve as an instrument for managing the capital adequacy of subsidiary banks.
Bank ESG Performance and Lending Behavior in the Mortgage Markets (with Kebin Ma, and Sarah Wang )
We show that bank holding companies (BHCs) with high environmental, social and governance (ESG) ratings on average tend to issue fewer mortgage loans, both in number and amount, to minority groups. The loan volumes to different racial and ethnic groups from such banks also show significant variation. These banks lend more to Asians, but less to American Indians, Blacks, and Native Hawaiians. BHCs with high ESG scores do not incline to the disadvantaged group when making loan decisions.
Predoctoral Research
Fintech and the future of financial service : a literature review and research agenda. (with Haitian Lu, Bingzhong Wang, and Qing Wu). China Accounting and Finance Review, 22.3 (2020) :107-136.