Do bank internal capital markets promote lending? Joel F. Houston * , Christopher James Graduate School of Business, University of Florida, Gainesville, FL 32611-2017, USA Abstract We analyze the relation between organization structure and bank lending. Loan growth among banks that are aliated with a multi-bank holding company is shown to be less sensitive to the bank's cash ¯ow, capital position and liquidity relative to un- aliated banks. Our results, coupled with the recent ®ndings of Houston et al. (Houston, J.F., James, C., Marcus, D., Journal of Financial Economics 46 (1997) 135± 164.), suggest that bank holding companies establish internal capital markets in an attempt to allocate capital among their various subsidiaries. We also ®nd that aliated banks are more responsive to local market conditions than their unaliated counter- parts. This ®nding suggests that despite the concerns raised regarding bank consoli- dation ± aliated banks are willing to lend in local markets as long as the opportunities are there. Ó 1998 Elsevier Science B.V. All rights reserved. JEL classi®cation: G21; G32 Keywords: Bank lending; Organization structure 1. Introduction Does the size and organizational structure of a bank aect its ability or willingness to lend? Moreover, do these factors aect the types of loans that banks make? These questions are important given the dramatic changes that Journal of Banking & Finance 22 (1998) 899±918 * Corresponding author. Tel.: (+1) 904 392 0153; fax: (+1) 904 392 0301. 0378-4266/98/$19.00 Ó 1998 Elsevier Science B.V. All rights reserved. PII S0378-4266(98)00009-0