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29 June 2017

BIS: Financial deglobalisation in banking?


Authors of this paper argue that the decline in cross-border banking since 2007 does not amount to a broad-based retreat in international lending ("financial deglobalisation").

In sum, the financial deglobalisation that appears to characterise global banking looks different from a consolidated perspective. It is better interpreted as a regional phenomenon that reflects an earlier banking glut that afflicted Europe. European banks responded to losses by shedding assets around the world.  

If it is accepted that the decline of cross-border and foreign banking claims is a symptom of a particular form of European bank deleveraging, what are the policy implications? One implication is that the authorities are well advised to insist on the strengthening of banks’ balance sheets, rather than let losses fester. 

Another is that there is a risk of mistaking bank deleveraging for a deglobalisation trend in banking. Doing so could influence the response to policies that tend to further banking fragmentation. If observers judge that the global banking market is already headed in the direction of deglobalisation, they may underestimate the cost of such policies. In other words, a misapprehension regarding the source of the contraction in global banking as secular rather than cyclical could actually prove self-fulfilling.

Full working paper



© BIS - Bank for International Settlements


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