Discussion Paper Details

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Title: Drivers of Structural Change in Cross-Border Banking Since the Global Financial Crisis

Author(s): Franziska Bremus and Marcel Fratzscher

Publication Date: December 2014

Keyword(s): arbitrage, cross-border bank lending, financial integration, home bias, monetary policy and regulation

Programme Area(s): International Macroeconomics

Abstract: The paper analyzes the effects of changes to regulatory policy and to monetary policy on cross-border bank lending since the global financial crisis. Cross-border bank lending has decreased, and the home bias in the credit portfolio of banks has risen sharply, especially among banks in the euro area. Our results suggest that expansionary monetary policy in the source countries ? as measured by the change in reserves held at central banks - has encouraged cross-border lending, both in euro area and non-euro area countries. Regarding regulatory policy, increases in financial supervisory power or independence of the supervisory authorities have encouraged credit outflows from source countries. The findings thus underline the importance of regulatory arbitrage as a driver of cross-border bank flows since the global financial crisis. However, in the euro area, arbitrage in capital stringency was linked to lower cross-border lending since the crisis.

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Bibliographic Reference

Bremus, F and Fratzscher, M. 2014. 'Drivers of Structural Change in Cross-Border Banking Since the Global Financial Crisis'. London, Centre for Economic Policy Research.