Intra-group, interstate strategic income management for tax, financial reporting, and regulatory purposes

In this study we examine whether banks owned by interstate multibank holdin g companies coordinate their security gains and losses to manage their tax, earnings, and capital management objectives. Specifically, we examine whet her the realization of security gains and losses is related to the objectiv es of the individual bank, the consolidated group, or both. We find subsidi ary banks manage their gain realizations not only to reduce their own state taxes, but also strategically to reduce their consolidated groups' tax exp ense. Specifically, members of consolidated banking groups shift gain recog nition to lower-taxed group members and away from higher-taxed group member s. In addition, we find evidence suggesting that banks realize security gai ns and losses to manage both their own and their groups' financial statemen t earnings.