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

Systemic Banking Crises: The Relationship Between Concentration and Interbank Connections

“…4 Moreover, they detect a fall in global banking connection's den-sity after the recent global financial crisis. This finding is in line with Hale (2012), who assesses that the crisis dampened the formation of new banking relationships, Demirer et al (2017), who find that global system connectedness has shrunk after the Lehman bankruptcy by applying a LASSO estimation to bank equity and sovereign bonds volatilities, and Cerutti & Zhou (2017), who have estimated that global banking network has become smaller in absolute terms, but more connected at a regional level. Aldasoro & Alves (2017) assess multiple-layered interbank networks through the breakdown of maturity and instrument type of interbank linkages.…”

The Global Banking Network: What is Behind the Increasing Regionalization Trend?

“…McCauley and others (2017) stress the importance of using consolidated data (which would include direct cross-border lending, as well as subsidiaries and branch lending) instead of nationality-based locational data, and conclude that the shrinkage of the banking network, from a consolidated perspective, is more like a regional phenomenon, limited to European banks, and reversing an earlier banking glut based on very high leverage in Europe. Based on a systematic approach to measuring and mapping interconnectedness using network theory, Cerutti and Zhou (2017) confirm the overall shrinking of both direct cross-border and local affiliate lending, but also note that global aggregates mask rich dynamics of the network. They highlight that although major global lenders decreased lending, they remained the core of the network, while some parts of the network are currently more interlinked regionally than before the crisis, driven by an increase in lending by non-core, non-European banks.…”

“…More specifically, our theoretical framework allowed us to investigate the regionalization phenomenon at a global level, explicitly connecting banks' lending / no-lending decision with the quantity-of-lending decision, and to obtain consistent estimates using only aggregate country-level bilateral data, as in the case of trade. Second, we estimated the gravitational model using the BIS Consolidated Banking Statistics (the most comprehensive global dataset available that allows a breakdown between direct cross-border and local affiliate lending) to which, following Cerutti (2015) and Cerutti and Zhou (2017), we performed some adjustments in order to depict a more accurate picture of bilateral banking linkages (e.g., excluding local deposit funding from local affiliate claims).…”

“…The total amount of cross-border banking lending within the global banking network shrunk, driven by a sharp reduction in cross-border lending activity by most European banking systems (European Central Bank, 2014;International Monetary Fund, 2015;McCauley and others, 2017). Yet, at the same time, there was an increase in the number of lender-borrower connections within the same region in the periphery of the banking network (Cerutti and Zhou, 2017). This latter phenomenon is often called regionalization, and is associated with the expansion of cross-border lending by foreign banks, especially the banks outside the main global banking systems (US, Euro Area, UK, and Japan), through their affiliates in neighboring countries (Bank for International Settlements, 2014; Claessens and van Horen, 2015;International Monetary Fund, 2015, as well as their increasing direct cross-border lending to borrowing neighbors (Cerutti and Zhou, 2017).…”

“…Yet, at the same time, there was an increase in the number of lender-borrower connections within the same region in the periphery of the banking network (Cerutti and Zhou, 2017). This latter phenomenon is often called regionalization, and is associated with the expansion of cross-border lending by foreign banks, especially the banks outside the main global banking systems (US, Euro Area, UK, and Japan), through their affiliates in neighboring countries (Bank for International Settlements, 2014; Claessens and van Horen, 2015;International Monetary Fund, 2015, as well as their increasing direct cross-border lending to borrowing neighbors (Cerutti and Zhou, 2017). 1 The purpose of this paper is to go one step beyond documenting or presenting anecdotal evidence on banking regionalization as is currently done in the literature, and to analyze the nature of the regionalization phenomenon itself, including the factors that could be associated with this recent apparent regional trend in both direct cross-border and foreign affiliates' banking lending.…”