New Working Paper on Internal Capital Market Practices of Multinational Banks: Evidence from South Africa

Dec 03, 2015

The Making Finance Work for Africa Partnership (MFW4A) has published its second issue of its working paper series.

In this edition, Adeline Pelletier, assistant professor at the Instituto de Empresa in Madrid, examines how internal capital flows inside multinational banks create global financial interconnections. Using a novel database of banks operating in South Africa which tracks the exchanges of internal capital between the foreign affiliates located in South Africa and their banking group. Her analysis shows that foreign affiliates' balance sheet are not immune to "reversal of fortune" when other members of their banking group need large amounts of internal capital to cushion capital losses, leading to an abrupt reallocation of internal capital across countries. Moreover, she examines the link between the reception of internal funding and the expansion of bank credit by foreign affiliates, and finds a positive impact of the volume of internal funding received on bank credit expansion in the local mortgage market. Finally, she highlights and discusses potential implications of her findings for bank regulators as well as for researchers. The MFW4A working paper series disseminates the findings of works-in-progress, preliminary research results, development experiences and lessons on financial sector development in Africa.They are published to stimulate discussions, the exchange of ideas and innovative thinking among researchers, development practitioners, policy makers and donors. You can download the working paper (pdf) here. You can also read
a non-technical summary of the paper in the Africa Finance Forum blog.