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Deglobalization of Banking: The World is Getting Smaller

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  • Van Rijckeghem, Caroline
  • Weder di Mauro, Beatrice

Abstract

Banks have been running for home. We investigate the pattern of this increasing home bias in the wake of the financial crisis and explore possible explanations. We estimate the strength of the flight home effect as the change in domestic credit extended by domestic banks that cannot be accounted for by recipient or lender effects. We find evidence of flight home for almost all banking systems with the notable exception of the US and Japan. In periods of calm, reversals of the home bias are small. The result is cumulative renationalization, with domestic lending growing on average 25% more than foreign lending during 2008-12. Sales and acquisitions of banks contributed to the home bias and the flight home was strong at the intensive margin as well. Deterioration of bank soundness explains some but not all of the effect, e.g. Germany and Switzerland had a strong flight home notwithstanding improving bank soundness during the eurocrisis. We also find evidence of the vicious circle between banks and sovereign balance sheets: sovereign stress paired with banking stress contributed to the renationalization of banking.

Suggested Citation

  • Van Rijckeghem, Caroline & Weder di Mauro, Beatrice, 2014. "Deglobalization of Banking: The World is Getting Smaller," CEPR Discussion Papers 10139, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:10139
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    References listed on IDEAS

    as
    1. Giannetti, Mariassunta & Laeven, Luc, 2012. "The flight home effect: Evidence from the syndicated loan market during financial crises," Journal of Financial Economics, Elsevier, vol. 104(1), pages 23-43.
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    Cited by:

    1. repec:oup:revfin:v:21:y:2017:i:4:p:1513-1555. is not listed on IDEAS
    2. Eugenio Cerutti & Stijn Claessens, 2017. "The Great Cross-Border Bank Deleveraging: Supply Constraints and Intra-Group Frictions," Review of Finance, European Finance Association, vol. 21(1), pages 201-236.
    3. Geert Bekaert & Arnaud Mehl, 2017. "On the Global Financial Market Integration “Swoosh” and the Trilemma," NBER Working Papers 23124, National Bureau of Economic Research, Inc.
    4. Stijn Claessens, 2017. "Global Banking: Recent Developments and Insights from Research," Review of Finance, European Finance Association, vol. 21(4), pages 1513-1555.
    5. repec:oup:rfinst:v:21:y:2017:i:4:p:1513-1555. is not listed on IDEAS

    More about this item

    Keywords

    deglobalization; financial protectionism; international banking system;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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