DO BANK INTERNAL CAPITAL-MARKETS PROMOTE LENDING

We analyze the relation between organization structure and bank lendin g. Loan growth among banks that are affiliated with a multi-bank holdi ng company is shown to be less sensitive to the bank's cash flow, capi tal position and liquidity relative to unaffiliated banks. Our results , coupled with the recent findings of Houston et al. (Houston, J.F., J ames, C., Marcus, D., Journal of Financial Economics 46 (1997) 135-164 .), suggest that bank holding companies establish internal capital mar kets in an attempt to allocate capital among their various subsidiarie s. We also find that affiliated banks are more responsive to local mar ket conditions than their unaffiliated counterparts. This finding sugg ests that despite the concerns raised regarding bank consolidation - a ffiliated banks are willing to lend in local markets as long as the op portunities are there. (C) 1998 Elsevier Science B.V. All rights reser ved.