Understanding International Bank Capital Flows during the Recent Financial Crisis

Our Financial Stability Papers are designed to develop new insights into risk management, to promote risk reduction policies, to improve financial crisis management planning or to report on aspects of our systemic financial stability work.
Published on 23 September 2010

Financial Stability Paper No. 8
By Glenn Hoggarth, Lavan Mahadeva and Jeremy Martin

Cross-country bank lending mushroomed over the past decade. This helped to spread risks but also meant that international banks were more vulnerable than previously to shocks from abroad including from each other. Following the outbreak of the US sub-prime crisis, and especially after the collapse of Lehman Brothers, cross-border bank flows reversed dramatically. This paper is aimed at better understanding how the recent crisis propagated through the international banking system. It describes the pattern of deleveraging by international banks in reaction to their funding and capital pressures, the international spillovers and the vulnerability of the UK banking system to shocks from abroad given its global role.

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