Global European banks and the financial crisis

This paper reviews some of the recent studies on international capital flows with a focus on the role of European global banks. It presents a revision to the commonly held “global saving glut” view that East Asian economies (along with oil-rich nations) were the dominant suppliers of capital that fueled the asset price boom in many parts of the world in the early 2000s. It argues that the role of funding costs and a “liberal” regulatory regime that allowed for an unprecedented expansion of the balance sheets of European banks was no less important. Finally, we describe the aftermath of the crisis in terms of some of the challenges faced by Europe as a whole and European banks in particular.