Came across a very nice paper prepared by Hyun Song shin titled global banking glut and loan risk premium.

The paper describes how the European banks intermediate the US dollar funds and influenced the credit conditions in US.  Hyung Song suggested that the culprit for the easy credit conditions in US up to 2007 may have been “Global Banking glut” rather than the “Global saving glut

The paper is based on the hypothesis that the cross border banking and the fluctuating leverage of the global banks are the channels through which permissive financial conditions are transmitted globally, focusing on the impact of global liquidity on advanced economies.

The gross capital inflows to the United States represent lending by foreign (mainly European) banks via the shadow banking system through the purchase of private label mortgage-backed securities and structured products generated by the securitization of claims on US borrowers. In this way, European banks may have played a pivotal role in influencing credit conditions in the United States by providing US dollar intermediation capacity.

Comparatively Euro zone had a roughly balanced current account while the UK is actually a deficit country.

The Paper also provides an opportunity to study why it was Europe that saw rapid increase in banking capacity and why did European (and not US) banks expand intermediation between US borrowers and savers?

The conclusion ends with a remark and a question why the European banks expanded so rapidly in the decade beginning in 1999.Introdution of the EURO lead to free-floating of money (bank liabilities) in the euro zone across borders but the asset size remained stubbornly local and immobile.

Link to the source paper. http://www.princeton.edu/~hsshin/www/mundell_fleming_lecture.pdf

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