The Impact of the 2008 Global Crisis on the Banking System

Abstract

This paper examines the impact of the 2008-2009 Global Crisis on the banking systems of the countries around the world. Nine variables are examined which include bank concentration, bank deposits, 5-bank asset concentration, liquid liabilities, net loans from non-resident banks, outstanding loans from non-resident banks, offshore bank deposits, remittances, and consolidated foreign claims. The paper looks at how each of these banking system variables had changed before the crisis, during the crisis, and after the crisis. The results show that during the run-up to the crisis, 8 out of the 9 variables had not changed significantly (only net loans from non-resident banks had declined significantly), therefore we argue that there was almost no sign of an upcoming crisis during the run-up period. Still, policymakers may use such a sudden significant decline in loans from non-resident banks as a warning sign. The results show that, during the crisis period, the net loans from non-resident banks continued to decline. Also, during the crisis period, offshore deposits significantly declined. During this period, there was no significant change in the other variables. Therefore, we conclude that the crisis mainly affected the loans from non-resident banks and the offshore deposits. When the post-crisis period is examined, the results show that bank deposits and loans from non-resident banks had increased significantly. There was no significant change in the other variables. We suggest policymakers to use these findings when developing strategies to protect their country’s banking system in the face of an economic crisis.