Financial Deglobalisation in Banking?
Journal of International Money and Finance, Vol. 94, June 2019 DOI/10.1016/j.jimonfin.2019.01.011
Posted: 9 Apr 2019
Date Written: March 17, 2019
This paper argues that the decline in cross-border banking since 2007 does not amount to a broad-based retreat in international lending (“financial deglobalisation”). We show that BIS international banking data organised by the nationality of reporting banks provide a clearer picture of international financial integration than the traditional “residence”, or balance-of-payments, view. They show that what appears to be a global shrinkage of bank positions is actually driven by European banks. These banks uniquely responded to credit losses after 2007 by shedding assets abroad to restore capital ratios. Other banking systems’ global footprints, notably those of Japanese, Canadian and even US banks, have expanded since 2007. Using a global dataset of banks’ affiliates (branches and subsidiaries), we demonstrate that the who (i.e., bank nationality) accounts for more of the peak-to-trough shrinkage in foreign claims than does the where (i.e., locational factors). We relate bank nationality in turn to EU membership, which may reflect asset shrinkage required by the EU competition authorities in response to state aid, bank profitability and credit losses.
Keywords: Financial globalisation; International banking; Consolidation; Bank nationality; Ownership
JEL Classification: F36, F4, G21
Suggested Citation: Suggested Citation