By Patrick McGuire and Philip Wooldridge
International banking grew rapidly from the 1950s to the 2000s, propelled by banks avoiding regulations that burdened their domestic funding, by financial liberalisation that expanded investment opportunities, and by financial innovation that offered new tools to manage risks. The core of the market is offshore, where lenders and borrowers transact in currencies foreign to them both. Competition among banks for market share contributed to surges in international lending that amplified credit booms preceding major financial crises. Losses during the Great Financial Crisis, and regulatory reforms in its wake, have constrained banks’ expansion, making way for non-bank financial institutions to step in as major international creditors.