nep-ifn New Economics Papers
on International Finance
Issue of 2017‒07‒23
two papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Financial deglobalisation in banking? By Robert N. McCauley; Agustín S. Bénétrix; Patrick M. McGuire; Goetz von Peter
  2. The Social Value of Financial Expertise By Pablo Kurlat

  1. By: Robert N. McCauley (Bank for International Settlements); Agustín S. Bénétrix (Department of Economics, Trinity College Dublin); Patrick M. McGuire (Bank for International Settlements); Goetz von Peter (Bank for International Settlements)
    Abstract: This paper argues that the decline in cross-border banking since 2007 does not amount to a broad-based retreat in international lending (“financial deglobalisation”). We show that BIS international banking data organised by the nationality of ownership (“consolidated view”) provide a clearer picture of international financial integration than the traditional balance-of-payments measure. On the consolidated view, what appears to be a global shrinkage of international banking is confined to European banks, which uniquely responded to credit losses after 2007 by shedding assets abroad – in particular, reducing lending – to restore capital ratios. Other banking systems’ global footprint, notably those of Japanese, Canadian and even US banks, has expanded since 2007. Using a global dataset of banks’ affiliates (branches and subsidiaries), we demonstrate that the who (nationality) accounts for more of the peak-to-trough shrinkage of foreign claims than does the where (locational factors). These findings suggest that the contraction in global lending can be interpreted as cyclical deleveraging of European banks’ large overseas operations, rather than broad-based financial deglobalisation.
    Keywords: Financial globalisation, international banking; consolidation; ownership
    JEL: F36 F4 G21
    Date: 2017–07
  2. By: Pablo Kurlat (Stanford University)
    Abstract: I study expertise acquisition in a model of trading under asymmetric information. I propose and implement a method to measure r, the ratio of the marginal social value to the marginal private value of expertise. This can be decomposed into three sufficient statistics: traders’ average profits, the fraction of bad assets among traded assets and the elasticity of good assets traded with respect to capital inflows. For junk bond underwriting I measure r = 0.18 and for venture capital I measure r = 0.73. In both cases this is less than one, which implies that marginal investments in expertise destroy surplus.
    Date: 2017

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