The Dark and the Bright Side of Global Banking: A (Somewhat) Cautionary Tale from Emerging Europe

This paper reviews the literature on the benefits and risks of global banking, with a focus on emerging Europe. It argues that while the potential destabilising impact of global banks was well understood before the recent financial crisis, the sheer magnitude of this impact in the case of systemically relevant foreign bank subsidiaries was under-appreciated. A second lesson from the crisis is that banks’ funding structure, in particular the use of short-term wholesale funding, matters as much for lending stability as does their ownership structure.