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Cross-border Banking in Europe: Implications for Financial Stability and Macroeconomic Policies

Thorsten Beck's picture

Understanding the role of banks in cross-border finance has become an urgent priority. The recent Global Financial Crisis and ongoing European crisis have shown the importance of creating the necessary regulatory and macroeconomic conditions for a Single European Banking Market to function properly in good and in tough times. Together with five other economists (Franklin Allen, Elena Carletti, Philip Lane, Dirk Schoenmaker and Wolf Wagner) I have  published a CEPR policy report that analyzes key aspects of cross-border banking and derives policy recommendations from a European perspective. We argue that for Europe to reap the important diversification and efficiency benefits from cross-border banking, while reducing the risks stemming from large cross-border banks, reforms in micro- and macro-prudential regulation and macroeconomic policies are needed.

The benefits and risks of cross-border banking have been extensively analyzed and discussed by researchers and policy makers alike. The main stability benefits stem from diversification gains; in spite of the Spanish housing crisis, Spain’s  large banks remain relatively solid, given the profitability of their Latin American subsidiaries. Similarly, foreign banks can help reduce funding risks for domestic firms if domestic banks run into problems. However, the costs might outweigh the diversification benefits if outward or inward bank investment is too concentrated. Based on several new metrics, we find that the structure of the large banking centers in the EU tends to be well balanced. However, problems are identified for the Central and Eastern European countries which are highly dependent on a few West European banks, and the Nordic and Baltic region which are relatively interwoven without much diversification. At the system-level, we find that the EU,  in contrast to other regions, is poorly diversified and is overexposed to the United States.

Central America: crime and violence eating up small business profits

Marcela Sanchez's picture

Central America: crime and violence eating up small business profits

From any tall building in Guatemala City you have a bird's eye view of a common site in cities across Latin America and the Caribbean: lodged in the alleys and walkways between modern highrises, low tin-roof structures shelter the hard world of the informal economy.

Those are usually the structures of small businesses, such as the one belonging to Cristina Lajuj's, currently feeling the pressure of the spiral of crime and violence that is threatening Central America's own prosperity. For more than 11 years, Lajuj has been making a living selling tortillas and other typical dishes. In a space just off a parking lot and smaller than a Washington DC food truck, five women begin mixing corn flour at 6:30 every morning. By 8AM a basket full of warm tortillas and a small plate of cheese slices await the clientele of office workers, delivery men and other street vendors.

Les prix alimentaires, ou l’ingestion du coût de la logistique

Jordan Z. Schwartz's picture

Du déjà-vu.

Nous voilà de nouveau en train d'essayer de disséquer les causes profondes de la hausse des prix alimentaires qui ont repris leur progression haletante en direction des niveaux record de 2008. Est-ce là le résultat de la spéculation sur les marchés des produits ? de l'envol de la demande de céréales fourragères dans les pays asiatiques ? de la réaffectation de terres jusque là consacrées à la culture de produits alimentaires à la production de biocombustibles ? Pour nos spécialistes de l'agriculture, de l'énergie et des transports, la réponse est claire : « oui, oui et encore oui ».

Lire les commentaires, en français, sur Facebook.

Will Someone Find and Control the Master Switch of the Internet?

Sina Odugbemi's picture

A recent  (2010) book by Tim Wu titled The Master Switch: the Rise and Fall of Information Empires is a sweeping, industrial history of the succession of new media technologies that rose to prominence in America in the 20th century: radio, the telephone, television, film and, of course, the Internet. It is an American story with global ramifications because of the powerful global influence of American information empires.

Wu's story is both arresting and depressing.

Can Virtual Civil Societies Build Citizen Competence?

Sabina Panth's picture

The image of civil society as non government entities with concrete institutions, with office space, meeting halls and formal titles, is gradually shifting in this virtual age of online activism and social media.  Instead, these formal institutions are diffusing into loose networks, where, in place of human resources, software programs are doing much of the work.  In the words of journalist Charlie Beckett, these emerging entities are the “Virtual Civil Societies.” 

How can Zimbabwe avoid having the world’s worst Human Development Index?

Martin Ravallion's picture

Each year the mass media and many governments look keenly at the country rankings by the Human Development Index (HDI). In the 2010 Human Development Report, Zimbabwe has the lowest HDI in the world at 0.14 on a (0,1) scale (UNDP, 2010). The next lowest is the Democratic Republic of the Congo (DRC), with 0.24. (Norway is highest, at 0.94.)

It is natural to ask: what would Zimbabwe need to do to get its HDI up to the level of the DRC or better? Zimbabweans will no doubt have a strong interest in knowing the answer, as will those interested in the HDI in general.

There are three components to the HDI, for life expectancy, schooling and income. Let’s look at these in turn.

Weekly Wire: the Global Forum

Kalliope Kokolis's picture

These are some of the views and reports relevant to our readers that caught our attention this week.

TrustLaw
Anti-Corruption Views- World Bank, UN make ‘how to’ asset recovery guide

"How do you stop corrupt regimes from stashing their money in your jurisdiction? That is the question a joint initiative by the World Bank and United Nations answers in a recent report.

The Barriers to Asset Recovery report, by the Stolen Asset Recovery Initiative (StAR), gives policymakers a ‘how to’ guide on implementing laws and mechanisms needed to freeze and repatriate stolen assets." READ MORE


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