Financial Stability Note: International bank flows and bank business models since the crisis

A Financial Stability Note by Valerie Herzberg and Peter McQuade examines developments in cross-border banking since the global financial crisis. It considers whether the post-crisis business models of many banks have implications for international risk sharing.

The key findings of the Financial Stability Note are:

• Euro area banks, including those in Ireland, are now more domestically- oriented, smaller, with less trading, and more deposit-funded.
• The more conservative approach of many banks is partly related to regulation put in place after the global financial crisis to enhance financial stability. However, a move towards smaller and less complex units may limit economies of scale. It might also mitigate the advantages of certain cross-border activities for banks. That said, foreign-owned domestically-funded banks could still contribute to risk sharing across borders.
• Overall, a number of European and national reforms are still necessary for the banking sector to play a greater role as a shock absorber in the European banking union.

The views expressed in this Note are those of the authors alone and do not represent the official views of the Central Bank of Ireland.

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