The financial crisis has revealed the urgent need to better understand the determinants and consequences of cross-border banking. International banking has been driven both, by the globalization of economic activity, and by the deregulation of financial markets. It can have positive implications for economic welfare through an improved allocation of capital and enhanced possibilities for risk-sharing across countries. However, activities of internationally active banks can also be more risky than those of domestic banks, and it can be a source of systemic risk.
Against this background, a rich new research agenda has emerged, which aims at assessing the drivers of international banking. This research shows that using aggregated or bilateral country-by-country data is not sufficient to analyze the causes and effects of cross-border banking. Rather, micro data are needed that allow shedding light at the cross-border linkages of individual banks and at intra-bank, cross-border banking structures. Many key policy questions such as the response of banks to country-specific, macroprudential policies such as counter-cyclical capital buffers, and the cross-border resolution of banks require such information.
Yet current research on these issues cannot answer many of the policy-relevant questions for various reasons: bilateral banking data provided by the Bank for International Settlements (BIS) do not allow studying bank heterogeneity; commercial bank-level data provided in Bankscope lack important information on cross-border activities of banks that are available only to regulators; existing bank-level datasets in Central Banks cannot be merged to allow for a joint analysis of different banking systems simultaneously. Hence, heterogeneity in adjustment of banks from different countries cannot be studied.
Overcoming these obstacles is important for research and policy. Because legal obstacles towards merging different confidential datasets are unlikely to be surmounted within the foreseeable future, alternative approaches towards achieving a Common Research Agenda on cross-border banking must be found.
Matias Ossandon Busch
Senior Economist at the Center for Latin American Monetary Studies
IT Services at Halle Institute for Economic Research (IWH) – Member of the Leibniz Association
Professor at Otto-von-Guericke University Magdeburg & Head of Research Group in the Department of Financial Markets at Halle Institute for Economic Research (IWH) – Member of the Leibniz Association
Doctoral student and researcher in the Department of Financial Markets at Halle Institute for Economic Research (IWH) – Member of the Leibniz Association
We like to thank all contributors for their useful comments and valuable suggestions regarding the development of this website.
International Monetary Fund
Federal Reserve Bank of New York
University of Zurich, Swiss Finance Institute, and CEPR
International Monetary Fund, Università Politecnica delle Marche, and Money & Finance Research (MoFiR)
Dylan Durvin Kalisetty Appadu