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What happened to global banking after the crisis?

Dirk Schoenmaker (Department of Finance, RSM Erasmus University, Rotterdam, The Netherlands)

Journal of Financial Regulation and Compliance

ISSN: 1358-1988

Article publication date: 10 July 2017

Abstract

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

Acknowledgements

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.

Citation

Schoenmaker, D. (2017), "What happened to global banking after the crisis?", Journal of Financial Regulation and Compliance, Vol. 25 No. 3, pp. 241-252. https://doi.org/10.1108/JFRC-01-2017-0010

Publisher

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Emerald Publishing Limited

Copyright © 2017, Emerald Publishing Limited