Financial deglobalisation in banking?
BIS Working Papers No 650
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 ownership ("consolidated view") provide a clearer picture of international financial integration than the traditional balance-of-payments measure. On the consolidated view, what appears to be a global shrinkage of international banking is confined to European banks, which uniquely responded to credit losses after 2007 by shedding assets abroad - in particular, reducing lending - to restore capital ratios. Other banking systems' global footprint, notably those of Japanese, Canadian and even US banks, has expanded since 2007. Using a global dataset of banks' affiliates (branches and subsidiaries), we demonstrate that the who (nationality) accounts for more of the peak-to-trough shrinkage of foreign claims than does the where (locational factors). These findings suggest that the contraction in global lending can be interpreted as cyclical deleveraging of European banks' large overseas operations, rather than broad-based financial deglobalisation.
JEL classification: F36, F4, G21
Keywords: Financial globalisation, international banking, consolidation, ownership