The thesis consists of four research papers. The study "Foreign lending, risk aversion and the financial crisis" investigates the determinants of the provision of foreign loans by internationally active German banks. For the period from 2002 to 2010, we look at quarterly long-term lending based on transactions (excluding valuation effects) by the largest 69 German banking groups to the non-bank private sector of 66 countries. We show that lending by parent banks is based almost exclusively on supply-side determinants, in particular on bank-specific factors. However, foreign countries demand and risk characteristics become more relevant when loans are granted by banks affiliates located abroad. Focusing on risk measures such as the parent bank s ratio of Tier I capital to risk-weighted assets, we find that rising risk aversion among banks curbed foreign lending during the financial crisis, especially at a later stage following the collapse of Lehman Brothers. However, we find a threshold at around 11% of the Tier I capital ratio above which an increase in the ratio does not curb lending anymore.The study "Intra-bank flows as a mirror of multinational banks priorities and resources in the crisis" investigates how the lending activities abroad of a multinational bank s local and hub affiliates are being affected by funding difficulties during the financial crisis. We find that affiliates local deposits and profitability have been stabilizing the loan supply. By contrast, relying on short-term wholesale funding has increasingly proven to be a disadvantage in the crisis, as inter-bank and capital markets froze. By introducing a liable approximate measure for intra-bank flows, we detect competition for intra-bank funding between the affiliates abroad as well as an increasing focus on parent bank s home market activities. In addition, the more an affiliate abroad takes recourse to intra-bank funding in the crisis, the more it becomes dependent on its parent bank having a stable deposit and long-term wholesale funding position. We consider changes in long-term lending to the non-bank private sectors of 40 countries by the affiliates of the 68 largest German banks. To obtain a more precise picture, we clean our lending data from valuation effects.This research paper "Repo funding and internal capital markets in the financial crisis" examines key events during the financial crisis, which called into question the low risk associated with providing and obtaining secured funding. Domestic parents of German multinational banks which were more exposed to the runs on the collateralized repo (sale and repurchase) markets are found to have withdrawn bank-internal funds from their foreign affiliates to a greater extent. After the collapse of the subprime market, they briefly protected their branches, which were core investment locations abroad, while subsidiaries were used as core funding locations up to the Lehman Brothers bankruptcy. The rescue of Bear Stearns triggered the largest contraction on internal capital markets from the part of the parent bank. All in all, this study finds that the funding shocks primarily related to the US financial system were transmitted abroad both through repo financing on capital markets and through bank-internal capital markets.The analysis of "German banks in financial centers: How risky is their business?" shows that German banks financial center affiliates are on aggregate four times as large as the affiliates located elsewhere, and that their balance sheet total is half the size of the German parent banks aggregate total assets. Besides, they are strongly connected with financial players in other financial centers, which makes them susceptible to distress in financial markets. German banks affiliates in financial centers operate predominately as branches as opposed to subsidiaries. This promotes the transmission of shocks to the parent bank due to the balance sheet consolidation for regulatory purposes. Financial center affiliates constantly have to roll over large amounts of short-term debt. As a consequence, they required larger injections of liquidity from their parent banks during the recent financial crisis. Balance sheet risk for parent banks is most likely to arise from financial center branches, as they are in general weakly capitalized, and as a change in accounting rules reveals since December 2010 their strong, formerly off-balance sheet involvement in derivatives trading.
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