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The 2008 crisis: transpacific or transatlantic?

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  • Robert N McCauley

Abstract

This study analyses two hypotheses that ascribe the 2008 US financial crisis to capital inflows. The Asian savings glut hypothesis posits that net inflows into high-grade US public bonds from countries running current account surpluses led to the housing boom and bust. An excess of savings over investment abroad led to an excess of US investment over savings. The European banking glut hypothesis holds that gross inflows into private bonds led to the boom. Leveraging-up by European banks enabled the leveraging-up of US households. Gross flows from Europe better matched US mortgage market trends towards private credit risk, floating interest rates and narrow spreads. What is more, European banks produced, not just invested in, US mortgage-backed securities. Their US securities affiliates held huge exposures to such securities that deserve recognition. Furthermore, European banks' leveraging-up also provided credit that enabled housing booms in Ireland and Spain. These findings favour the European banking glut hypothesis.

Suggested Citation

  • Robert N McCauley, 2018. "The 2008 crisis: transpacific or transatlantic?," BIS Quarterly Review, Bank for International Settlements, December.
    • Handle: RePEc:bis:bisqtr:1812f
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    2. André Sanchez Pacheco, . "Consolidated foreign wealth of nations: Nationality-based measures of international exposure," UNCTAD Transnational Corporations Journal, United Nations Conference on Trade and Development.
    3. Photis Lysandrou, 2022. "The European banks’ role in the financial crisis of 2007-8: a critical assessment," New Political Economy, Taylor & Francis Journals, vol. 27(5), pages 879-894, September.

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    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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