International banking has been an important driver of financial globalization and integration, so contributing to welfare gains over time and across countries. During the recent crisis, however, the plight of many internationally active banks epitomized the fragility of the financial system. This underscored the importance of a proper understanding of the drivers and effects of cross-border intermediation.
The report addresses structural issues in international banking from three angles: a historical perspective, what the drivers have been, and what might happen next.
• The development of international banking: the report documents its evolution over the last 30 years in terms of size, form and geographical coverage.
• The factors behind the development: the report provides a critical review of the literature on the various drivers of international banking. A noteworthy conclusion is that the fast growth of internationally active banks, which contributed to the vulnerability of their business model, is difficult to explain on efficiency grounds, at least at an aggregate level. This suggests that institutions' incentives might have been distorted, which warrants further investigation.
• Potential future developments: in addressing this more speculative question, the report pays particular attention to the regulatory reform environment, the pattern of economic growth worldwide and the rapidly evolving interactions between markets and banks.
You can download the full report HERE