Cross-Border Banking in the EU Since the Crisis: What is Driving the Great Retrenchment?

31 Pages Posted: 28 Feb 2018

See all articles by Lorenz Emter

Lorenz Emter

Central Bank of Ireland

Martin Schmitz

European Central Bank (ECB)

Marcel Tirpak

European Central Bank (ECB)

Date Written: February 26, 2018

Abstract

This paper examines the drivers of the retrenchment in cross-border banking in the European Union (EU) since the global financial crisis, which stands out in international comparison as banks located in the euro area and in the rest of the EU reduced their cross-border claims by around 25%. Particularly striking is the sharp and sustained reduction in intra-EU claims, especially in the form of deleveraging from cross-border interbank loans. Examining a wide range of possible determinants, we identify high non-performing loans as an important impediment to cross-border lending after the crisis, highlighting the spillovers from national banking sector conditions across the EU. We also find evidence that prudential policies can entail spillovers via cross-border banking in the EU, albeit with heterogeneity across instruments in terms of direction, magnitude and significance. Our results do not point to a major role of newly introduced bank levies in explaining cross-border banking developments.

Keywords: cross-border banking, international capital flows, deleveraging, financial integration, prudential policies, regulation, bank levy

JEL Classification: F21, F30, F42, G15, G28

Suggested Citation

Emter, Lorenz and Schmitz, Martin and Tirpak, Marcel, Cross-Border Banking in the EU Since the Crisis: What is Driving the Great Retrenchment? (February 26, 2018). ECB Working Paper No. 2130, ISBN: 978-92-899-3135-6, Available at SSRN: https://ssrn.com/abstract=3130599 or http://dx.doi.org/10.2139/ssrn.3130599

Lorenz Emter

Central Bank of Ireland ( email )

P.O. Box 559
Dame Street
Dublin, 2
Ireland

Martin Schmitz (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Marcel Tirpak

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
106
Abstract Views
843
Rank
486,943
PlumX Metrics