Financial De-globalisation in Banking?

This paper argues that financial de-globalisation in global banking is not adequately captured by cross-border statistics. We show that BIS international banking data organised by the nationality of ownership provide a... [ view full abstract ]

This paper argues that financial de-globalisation in global banking is not adequately captured by cross-border statistics. We show that BIS international banking data organised by the nationality of ownership provide a clearer picture of international financial integration than the traditional balance-of-payments based measure. On the consolidated view, what appears to be a global shrinkage of international banking is evidently confined to European banks. Other banking systems’ global footprint, notably Japanese, Canadian and even US banks, expanded since 2007. Using a global dataset of banks’ affiliates (branches and subsidiaries), we identify an influential nationality effect distinct from locational factors; it explains the concentrated nature of de-globalisation as a regional phenomenon, being driven by credit losses and funding models of European banks in particular. These findings suggest that the global decline in cross-border lending can be interpreted as cyclical deleveraging of European banks’ global operations, rather than broad-based de-globalisation.