Strong regional and global integration have been central to countries’ rapid growth and reduced poverty. Few economic sectors can better illustrate integration’s potential benefits — and its significant risks — than the banking sector.
The period prior to the 2008 global financial crisis was characterized by a significant increase in financial globalization, which coincided with dramatic increases in bank sizes. This was manifested both in a rise in cross-border lending and in the growing participation of foreign banks around the world, especially in developing countries. These trends resulted in: additional capital and liquidity; efficiency improvements through technological advancements and competition; and, eventually, greater financial development.
However, when the crisis hit, it also vividly demonstrated how international banks can transmit shocks across the globe. It became clear that systems in place to manage the risks associated with financial globalization were seriously flawed. The results were devastating to economies and to people, halting progress in the fight against poverty, affecting their incomes, health, and prospects for years to come.
- SDGs and Beyond