Abstract:

U.S. bank holding companies (BHCs) have developed a very significant nonbank
 footprint over the years, adding thousands of specialty lenders, brokers and dealers,
 asset management, and insurance subsidiaries to their organizations. These nonbank
 subsidiaries represent a sizeable share of aggregate BHC assets and a significant
 component of the entire U.S. nonbank industry. We argue that liquidity management
 synergies are an important driver of the coexistence of commercial banks and nonbank
 subsidiaries within BHCs. Using unique data on BHC organizational structure, we
 show evidence of large-scale intracompany transfers resembling liquidity insurance.
 We also show that BHCs appear to internalize the value of this insurance. Post-GFC
 banking regulation like resolution planning reduced the scope for liquidity synergies,
 thus leading BHCs to scale back their nonbank footprint. In the pre-GFC period,
 BHC subsidiaries reduced their cash holdings as they increased their reliance on
 intracompany funding.