| Abstract: |
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. |