What happened to global banking after the crisis?
Purpose: Large global banks were at the heart of the global financial crisis. In response to the crisis, the Financial Stability Board published an integrated set of policy measures, such as capital surcharges, to address the systemic and moral hazard risks associated with global systemically important banks (G-SIBs). Almost 10 years later, it is time to take stock of the impact of these measures. This paper answers three questions on what happened to the G-SIBs. First, have they shrunk in size? Second, are they better capitalised? Third, have they reduced their global reach?
Design/methodology/approach: This paper looks at the individual G-SIBs and compares the situation before the crisis with the current situation. In this methodology, the differences because of changes at individual banks and changes in the ranking within the group (composition effect) are disentangled. Data have been collected on these banks from SNL Financial (banking database) and annual reports.
Findings: First, a substantial increase in capital levels is seen, though the distribution is uneven. China and USA are leading the pact with leverage ratios (Tier 1 capital divided by total assets) of around 7 per cent for their large banks, whereas Europe and Japan are trailing behind with ratios between 4 and 5 per cent. Second, a strong composition effect is identified: 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 because of a composition effect (i.e. a reshuffle of the global banking champions league) and far less due to a reduced global reach of individual banks.
Research limitations/implications: From the results on capital, recommendations are made on capital requirements (see below at social implications).
Social implications: It is noted that the euro area, Japan, Sweden and Switzerland trail behind with a leverage ratio between 4 and 5 per cent. It is recommended these countries bring the leverage ratio of their largest banks more in line with international practice.
Originality/value: The effects of the reform after the global financial crisis on the large global banks have not been researched in detail. This paper split the results by country of incorporation (home country). This gives interesting differences, which the paper relates to specific policies (or lack of policies) in these countries.
|Keywords||Banking, Financial crisis, International finance|
|JEL||International Finance: General (jel F30), Banks; Other Depository Institutions; Mortgages (jel G21), Government Policy and Regulation (jel G28)|
|Persistent URL||dx.doi.org/10.1108/JFRC-01-2017-0010, hdl.handle.net/1765/101641|
|Journal||Journal of Financial Regulation and Compliance|
Schoenmaker, D. (2017). What happened to global banking after the crisis?. Journal of Financial Regulation and Compliance, 25(3), 241–252. doi:10.1108/JFRC-01-2017-0010