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This paper examines whether the organizational form of multinational banks' foreign affiliates affects cross-border spillovers of macroprudential regulation. We compare changes in the growth of lending provided by foreign banks' branches versus subsidiaries in the United Kingdom in response to changes in capital requirements, lending standards and reserve requirements in foreign banks' home countries. Our results suggest that a tightening of capital requirements at home reduces UK branches' interbank lending growth by 5.7pp more relative to subsidiaries. We link this effect to the higher degree of control which parent banks hold over operations of their foreign branches compared to subsidiaries. Supporting this hypothesis, a set of further tests illustrates that the response of foreign affiliates operating under a branch structure is stronger where parent banks are more likely to delegate more decision making authority to the board of directors of their subsidiaries.

This paper examines whether cross-border spillovers of macroprudential regulation depend on the organisational structure of banks' foreign affiliates. Our analysis compares the response of foreign banks' branches versus subsidiaries in the UK to changes in macroprudential regulations in foreign banks' home countries. By focusing on branches and subsidiaries of the same banking group, we are able to control for all the factors affecting parent banks' decisions regarding the lending of their foreign affiliates. We document that there are important differences between the type of regulation and the type of lending. Following a tightening of capital regulation, branches of multinational banks reduce interbank lending growth in the UK by 6.3pp more relative to subsidiaries of the same banking group. Lending to non-bank borrowers does not exhibit such differences. A tightening in lending standards or reserve requirements at home does not have differential effects on both interbank and non-bank lending in the UK. Keywords AbstractThis paper examines whether cross-border spillovers of macroprudential regulation depend on the organisational structure of banks' foreign affiliates. Our analysis compares the response of foreign banks' branches versus subsidiaries to changes in macroprudential regulations in foreign banks' home countries. By focusing on branches and subsidiaries of the same banking group, we are able to control for all the factors affecting parent banks' decisions regarding the lending of their foreign affiliates. We document that there are important differences between the type of regulation and the type of lending. Following a tightening of capital regulation, branches of multinational banks reduce interbank lending growth in the UK by 6.3pp more relative to subsidiaries of the same banking group. Lending to non-bank borrowers does not exhibit such differences. A tightening in lending standards or reserve requirements at home does not have differential effects on both interbank and non-bank lending in the UK.