The Great Cross-Border Bank Deleveraging: Supply Constraints and Intra-Group Frictions

Abstract

International banks greatly reduced their direct cross-border and local affiliates' lending as the global financial crisis strained balance sheets, lowered borrower demand, and changed government policies. Using bilateral, lender-borrower countrydata and controlling for credit demand, we show that reductions largely varied in line with markets' prior assessments of banks' vulnerabilities, with banks' financial statement variables and lender-borrower country characteristics playing minor roles. We find evidence that moving resources within banking groups became more restricted as drivers of reductions in direct cross-border loans differ from those for local affiliates' lending, especially for impaired banking systems. Home bias induced by government interventions, however, affected both equally. JEL Classification Numbers: E44, F23, F36, G21

The Global Banking Network in the Aftermath of the Crisis: Is There Evidence of De-globalization?

“…Our analysis of the global banking network, especially the breakdown between direct cross-border claims and affiliate (local) claims, goes in the same direction and helps put them into context. Despite the fact that direct cross-border lending declined more than local lending during the crisis (see Cerutti and Claessens, 2017), the importance of direct cross-border lending in terms of number of linkages and their strength is still larger than the ones generated by foreign affiliates' lending (either with or without the adjustment of affiliate claims by domestic deposit funding). Moreover, despite heterogeneity, our results highlight that peripheral borrower countries that are currently more interlinked regionally than before the crisis, benefited from stronger linkages with non-major, non-European lenders, in terms of both direct cross-border lending and affiliates' claims.…”

Cross-border banking in the EU since the crisis: What is driving the great retrenchment?

“…The European union (EU) banking sector is not only the largest in the world, but also accounts for the bulk of the "financial de-globalisation" observed in cross-border banking since the global financial crisis (Forbes, 2014;Cerutti and Claessens, 2016;McGuire and von Peter, 2016). In this paper we provide an anatomy of the great cross-border banking retrenchment in the EU and investigate a wide range of possible drivers of this phenomenon, including indicators of banking sector performance and stability, prudential policies and bank levies.…”

“…McGuire and von Peter (2016) stress their importance as banks affected by larger credit losses at home spread credit contractions across countries. Cerutti and Claessens (2016) suggest that cross-border deleveraging during the height of the global financial crisis varied across countries 1 For evidence of the significant impact of cross-border banking flows on real economic activity see, for example,…”

What Happened to Global Banking after the Crisis?

“…Following the global financial crisis and in the wake of regulatory reform, McCauley, McGuire and Von Peter (2012) expected that the trend toward decentralised multinational banking would likely accelerate, particularly if liquidity requirements were to be applied by host regulators on a legal entity basis. This is part of a broader trend of moving resources within banking groups becoming more restricted after the crisis (see Cerutti andClaessens, 2007, andSchoenmaker, 2016, on ringfencing). Claessens (2017) argued that banking has become more regional.…”