Working Paper: CEPR ID: DP10264
Authors: Vincent Bouvatier; Annelaure Delatte
Abstract: We assess the evolution of international banking integration at the light of gravity equations on banks? bilateral consolidated foreign claims data. Our estimates on a panel of 14 reporting countries and their 186 partners between 1999 and 2012 reveal: 1) the forward march of banking integration has reversed only as far as euro area countries are concerned as source or destination countries. 2) Euro area banks have reduced their international exposure inside and outside the euro area to a similar extent. 3) This decline is not a correction of previous overshooting but a marked desintegration. 4) In the rest of the world, the banking integration has strengthened since the financial crisis.
Keywords: Banking integration; Gravity model; International banking
JEL Codes: F34; F36
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Decline in banking activities observed after the financial crisis (F65) | Temporary frictions in all countries outside the euro area (F29) |
| Euro area banks exhibit marked disintegration (F65) | Reduction of international exposure both within and outside the euro area (F65) |
| Economic downturn in the euro area since 2008 (N14) | Insufficient explanation for the extent of retrenchment in international banking activities (F65) |
| Banking activities inside the euro area are 37% lower than predicted by gravity factors (F65) | Marked disintegration of banking activities (F65) |
| Strengthened banking integration in the rest of the world (F65) | Divergence in trends between euro area and non-euro area countries (F36) |