Changes to global banking after the crisis

What is it about?

The global financial crisis led to an alleged end of global banking. However, we find that reports on the end of global banking are premature. Investigating the global systemically important banks, we identify a strong composition effect: a shift of business from the global European banks to the more domestic Asian banks, which are gradually increasing their global reach. The US banks keep their strong position. So, the decline in cross-border banking is largely a result of a composition effect (i.e. a reshuffle of the global banking champions league) and far less of a reduced global reach of individual banks. On the reform agenda, we see a substantial increase in capital levels, though the distribution is uneven. China and the US are leading the pact with leverage ratios (Tier 1 capital divided by total assets) of around 7 percent for their large banks, while Europe and Japan are trailing behind with ratios between 4 and 5 percent. We suggest that the latter regions bring their capital levels into line with international practice.

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Why is it important?

Large banks are still too big to fail. Increasing capital levels is therefore important. In that way, private shareholders instead of public taxpayers can absorb potential losses.

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