The 2008 Crisis: Transpacific or Transatlantic?

20 Pages Posted: 29 Jan 2019

See all articles by Robert N. McCauley

Robert N. McCauley

Bank for International Settlements (BIS)

Date Written: December 1, 2018


This study analyses two hypotheses that ascribe the 2008 US financial crisis to capital inflows. The Asian savings glut hypothesis posits that net inflows into high-grade US public bonds from countries running current account surpluses led to the housing boom and bust. An excess of savings over investment abroad led to an excess of US investment over savings. The European banking glut hypothesis holds that gross inflows into private bonds led to the boom. Leveraging-up by European banks enabled the leveraging-up of US households. Gross flows from Europe better matched US mortgage market trends towards private credit risk, floating interest rates and narrow spreads. What is more, European banks produced, not just invested in, US mortgage-backed securities. Their US securities affiliates held huge exposures to such securities that deserve recognition. Furthermore, European banks' leveraging-up also provided credit that enabled housing booms in Ireland and Spain. These findings favour the European banking glut hypothesis.

JEL Classification: E44, F34, G01, G21

Suggested Citation

McCauley, Robert N., The 2008 Crisis: Transpacific or Transatlantic? (December 1, 2018). BIS Quarterly Review December 2018. Available at SSRN:

Robert N. McCauley (Contact Author)

Bank for International Settlements (BIS) ( email )

CH-4002 Basel, Basel-Stadt

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