Prepared by Luc Laeven (RES) and Thierry Tressel (EUR). Research assistance from Lindsay Mollineaux is greatly acknowledged.
Valuation effects arising from exchange rate movements are corrected for under the assumption that all claims are in euros.
The EA periphery includes Greece, Ireland, Italy, Spain and Portugal. Emerging EU countries include Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, the Slovak Republic, and Slovenia.
See for example Chen, R., G.M. Milesi-Ferretti and T. Tressel, 2012, “External Imbalances in the Euro Area,” IMF Working Paper 12/236, Forthcoming in Economic Policy.
Italy’s NFA deteriorated moderately in percent of GDP, but was among the five largest in absolute terms at the onset of the crisis.
In part this is because European banks tend to follow the universal banking model, which combines a range of retail, corporate, and investment banking activities under one roof. There are some accounting differences that would make the balance sheets of the IFRS-reporting banks appear more “inflated” than the balance sheets of banks reporting under the U.S. GAAP (e.g., netting of derivative and other trading items is only rarely possible under IFRS, but netting is applied whenever counterparty netting agreements are in place under U.S. GAAP).
Using deposits has the advantage that it is better proxy than assets for residency based activity of banks, as banks can book assets out of state where loans are made. This is less the case for deposits that remain mostly a local affaire.
For the comparison with the United States, as well as for any time that conclusions are drawn on the basis of the ECB cross-border data, a caveat is in order given the way that the data are reported for the EU. Specifically, such data are reported by residency rather than by nationality of the ultimate owner, and therefore miss any dynamics related to the resident subsidiaries of foreign banks. These resident subsidiaries may not have cut back as much on local loans as the direct cross-border loan numbers would suggest, and there are a few examples of core EU banks acquiring these foreign banks since the crisis, even as the BIS claims show a decrease in foreign claims in the aggregate.
For a description of small EU off-shore centers, see also Milesi-Ferretti and Lane, 2010, “Cross-border Investment in Small International Financial Centers,” IMF Working Paper 10/38.
Morgan, Donald P., Bertrand Rime and Philip E. Strahan, 2004, “Bank Integration and State Business Cycles,” Quarterly Journal of Economics 119 (4): 1555-1584.
Kalemli-Ozcan, Sebnem, Elias Papaioannou, and Jose-Luis Peydro, 2012, “Financial Regulation, Globalization and Synchronization of Economic Activity,” Forthcoming in Journal of Finance.
Part of the drop in deposits was driven by temporary shift from bank deposits to commercial paper (“pagares”).
The reported figures are changes in position, hence include asset write-downs.
IMF Global Financial Stability Report: “Restoring Confidence and Progressing on Reforms” (October 2012), “The Quest for Lasting Stability (Spring 2012).
Special Feature in the December 2012 ECB Financial Stability Review
Estimates from BIS data suggest that French and German banks have reduced their gross US$ assets by respectively US$270 billion and US$ 100 billion between Q2 of 2011 and Q2 of 2012.
The sample includes the following countries. BIS reporting countries: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Spain, Portugal, Sweden, and the U.K. Host countries: Austria, Belgium, Bulgaria, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Netherlands, Portugal, Romania, Slovak Rep., Slovenia, Spain, Sweden, and the U.K.
This variable is constructed as of end 2007.
Weekly Bank CDS spreads for the sample of EBA banks are averaged per country and quarter.
In addition to the set of control variables defined above, we also add in some robustness tests the sectoral composition of foreign claims (public sector, banks, non-bank private sector), for which data are publicly available from Q4 2010 onwards.
This section focused on EA countries where de-integration is a fundamental issue as it disrupts the transmission of monetary policy impulse.
It should be noted that the number of banks responding to the BLS in each quarter in some EU countries is very small.
The change in lending standards variable is based on the survey question: “Over the past three months, how have your bank’s credit standards as applied to the approval of loans or credit lines to enterprises changed?,” and the change in demand variable is derived from the survey question: “Over the past three months, how has the demand for loans or credit lines to enterprises changed at your bank, apart from normal seasonal fluctuations?” The survey responses on lending standards and credit demand conditions are effectively lagged one period in the regression analysis. For example, the results reported in the April 2012 bank lending survey relate to changes during the first quarter of 2012 and expectations of changes in the second quarter of 2012. This survey was conducted between March 23and April 5, 2012.
For a motivation and characterization of the elements of the Banking Union, see “A Banking Union for the Euro Area,” paper prepared by the staff of the International Monetary Fund.
The recent decision to establish the SSM under the auspices of the ECB is a welcome step this direction, but more is needed as also highlighted by the blueprint issued by the European Commission.