FINANCIAL TRANSACTIONS WITHIN BANK HOLDING COMPANIES

This study explores financial transactions within bank holding companies in both a theoretical and an empirical context. Empirical analysis focuses on two major types of interaffiliate financial transactions—extensions of credit and transfers of assets—between holding company banks and their nonbank affiliates (defined to include the parent company and nonbank subsidiaries of the parent) over the period 1976–1980. The data generally point to a net downstream flow of funds from the nonbank sector to the bank sector of a holding company, with the downstream fund flows particularly strong in the case of extensions of credit. In part, this result may reflect the statutory restrictions on bank lending to affiliates, particularly the collateral requirements.     

DETERMINANTS OF VALUATION EFFECTS FOR SECURITY OFFERINGS OF COMMERCIAL BANK HOLDING COMPANIES

In this study, the impact of security issuance by bank holding companies is examined in light of two hypotheses: the regulation or asymmetry reduction hypothesis and the bank capital hypothesis. Announcements of the issuance of common stock are associated with a significant negative effect, and the magnitude of this effect is similar to that found previously for utilities and smaller than that found for industrial firms. The market does not appear to treat subordinated debt announcements as similar to equity, although the debt qualifies as “capital” for regulatory purposes. Cross-sectional regressions do not support asymmetric information models where all unexpected external announcements are viewed negatively. Rather, the type of security being issued is an important determinant of the announcement effect.     

DETERMINANTS OF BANK HOLDING COMPANY DEBT RATINGS

This paper reports on the construction of a multiple discriminant analysis model which explains the specific ratings assigned by Standard and Poor's Corporation to bank holding company (BHC) capital notes and debentures. It thus investigats the ratings of debt securities issued by banking organizations, an area largely ignored in bond rating research to date. Improving on the methodology of current research concerning BHC bond ratings, the model is 78.5 percent accurate in initially classifying the top three rating categories—AAA, AA, and A. Lachenbruch validation finds the model to be 64.6 percent accurate. Size, variability of net income, the economic environment of the issuing BHC, and the amount and composition of total capital appear to be the principal variables allowing successful discrimination among the debet issue ratings.