International Banking: the Isolation of the Euro Area

We assess the evolution of international banking integration at the light of gravity equations on banks’ bilateral consolidated foreign claims data. Our estimates on a panel of 14 reporting countries and their 186 partners between 1999 and 2012 reveal: 1) the forward march of banking integration has reversed only as far as euro area countries are concerned as source or destination countries. 2) Euro area banks have reduced their international exposure inside and outside the euro area to a similar extent. 3) This decline is not a correction of previous overshooting but a marked desintegration. 4) In the rest of the world, the banking integration has strengthened since the financial crisis.