The Effect of Consolidation for the Interplay between Risk and Double Leverage Inside Bank Holding Companies
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We show that double leverage has a positive and significant impact on the risk undertaken by consolidated bank holding companies (BHCs). In contrast, for unconsolidated BHCs this effect is not relevant. Based on these outcomes, we claim that consolidation is one important factor to be considered for explaining the implication of double leverage for corporate risk. These findings are important for policy makers as well as academics, who until now have not studied the topic of double leverage exhaustively. Therefore, we suggest casting attention on consolidation rules, and exploring more deeply the hypothesis that double leverage allows arbitrages of consolidated capital requirements that ultimately encourage the risk-taking of BHCs (Bressan, 2018a).
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Bressan S (2016)This paper examines the effect of leverage on the corporate taxes paid by United States Bank Holding Companies. We find that, Bank Holding Companies reduce their tax burden when debt is raised from subsidiaries. However, ...
Bressan S (2018)Banking groups exploit double leverage when ‘debt is issued by the parent company and the proceeds are invested in subsidiaries as equity’. Financial authorities have frequently raised concerns about the issue of double ...
The Funding of Subsidiaries Equity, “Double Leverage,” and the Risk of Bank Holding Companies (BHCS) Bressan S (ACRN Oxford Publishing House, 2015)Double leverage” is the circumstance in which the parent company issues debt and acquires shares in the equity of subsidiaries (Board of Governors of the Federal Reserve System, 2012). The concern of financial authorities ...