Bank business models as a driver of cross-border activities

Abstract

Much of the post-crisis moderation in international banking has been shown to be attributable to euro area banks. Using a confidential bank-level dataset on euro area resident banks, this paper sheds light on the type of banks responsible for the decline in cross-border lending. Overall, globally systemically important banks (G-SIBs) were markedly different from other bank types resident in the euro area, as they not only increased their extra-euro area positions, but also contributed to maintaining cross-border flows within the euro area over the past decade. In addition, we also highlight that banks with initially higher capitalisation, more deposit funding and lower non-performing loan rates exhibit less cross-border retrenchment. These findings have clear policy implications for the design of bank regulations appropriate for a deepening European Banking Union.