In early April, the Federal Reserve Bank of New York released a staff report entitled “Organizational Complexity and Balance Sheet Management in Global Banks,” which analyzes the evolution of banks from standalone institutions to being subsidiaries of complex financial conglomerates. The paper suggests the organizational complexity of the family of a bank is a fundamental driver of the business model of the bank itself, as reflected in the management of the bank’s own balance sheet. Based on microdata on global banks with branch operations in the United States, the report shows that branches of conglomerates in more complex families have a markedly lower lending sensitivity to funding shocks. The balance sheet management strategies of banks are very much determined by the structure of the organizations the banks belong to and the complexity of the conglomerate can change the scale of the lending channel for a large global bank by more than 30 percent.
View the New York Fed staff report.
