What happened to global banking after the crisis?

Author:Dirk Schoenmaker
Position:Department of Finance, RSM Erasmus University, Rotterdam, The Netherlands
Pages:241-252
SUMMARY

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? ... (see full summary)

 
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What happened to global banking
after the crisis?
Dirk Schoenmaker
Department of Finance, RSM Erasmus University, Rotterdam, The Netherlands
Abstract
Purpose Large global banks were at the heart of the global nancial 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 identied: 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 reshufe 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 nancial 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 specic policies (or lack of policies) in these countries.
Keywords Financial crisis, Banking, International nance
Paper type Research paper
1. Introduction
Reading reports on the end of global banking reminds one of Mark Twain, who famously
wrote more than a century ago: “The report of my death was an exaggeration” (as reported
by Marshall White, 1897). The purpose of this paper is to review what happened to the global
banks, which still seem to be alive.
The large global banks were at the heart of the global nancial crisis. In response to the
crisis, the international Financial Stability Forum was upgraded to the Financial Stability
Board (FSB) in 2009, with the full participation of nance ministers and even heads of
government. The newly established FSB then published an integrated set of policy
JEL classication – F30, G21, G28
The author would like to thank Bennet Berger and Ines Goncalves Raposo for research assistance and
Maria Demertzis, Patty Duijm and Guntram Wolff for comments.
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1358-1988.htm
Global
banking
241
Journalof Financial Regulation
andCompliance
Vol.25 No. 3, 2017
pp.241-252
©Emerald Publishing Limited
1358-1988
DOI 10.1108/JFRC-01-2017-0010

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