European Bank Deleveraging : Implications for Emerging Market Countries

Just before the 2008-9 global financial crises, policy makers were concerned about the rapid growth of bank credit, particularly in Europe; now, worry centers on a potential global credit crunch led by European banking institutions. While recognizing that concrete evidence is limited by significant data gaps and lags, this note discusses the dynamics of European bank deleveraging and possible implications for emerging market economies (EMEs). Overall, the information available as of early 2012 shows a marked deterioration of credit conditions across Europe. Data also suggest that spillover effects are already being felt around the globe and imply significant channels through which deleveraging could have disruptive short and long-term consequences for credit conditions in EMEs, particularly in Central and Eastern Europe (CEE). However, the significant liquidity support provided by the European Central Bank (ECB) since December may be a 'game changer,' at least in the short term, because it has helped revive markets and limited the risk of disorderly deleveraging. The extent, speed, and impact of European bank deleveraging will henceforth depend largely on the evolution of market conditions, which in turn are guided by the ultimate impact of ECB liquidity support, attainment of sovereign debt sustainability and fiscal convergence within the euro zone, and credibility of the European rescue fund as an effective firewall against contagion.

Bibliographic Details

Main Authors:	Feyen, Erik, Kibuuka, Katie, Ötker-Robe, Inci
Language:	English
Published:	World Bank, Washington, DC 2012-04
Subjects:	ACCESS TO CREDIT, ACCESS TO MARKET, AFFILIATE, AFFILIATES, APR, ASSET MANAGERS, ASSET SALES, ASSET VALUES, ASSET-LIABILITY MANAGEMENT, BALANCE SHEET, BALANCE SHEETS, BANK ASSETS, BANK BALANCE SHEETS, BANK CAPITAL, BANK CREDIT, BANK EARNINGS, BANK FOR INTERNATIONAL SETTLEMENTS, BANK LENDING, BANK LOANS, BANKING AUTHORITY, BANKING INSTITUTIONS, BANKING SECTORS, BANKING STATEMENTS, BANKING SYSTEM, BANKING SYSTEMS, BANKS, BOND, BOND MARKET, BONDHOLDERS, BONDS, BORROWING, CAPITAL MARKETS, CAPITAL REQUIREMENTS, CAPITAL SHORTAGE, CENTRAL BANKS, COLLATERAL, CONTAGION, COSTS OF BORROWING, CREDIBILITY, CREDIT CRUNCH, CREDIT EXPANSION, CREDIT PROVISION, CREDIT RATINGS, CREDIT RISKS, CROSS-BORDER FLOWS, DEBT, DEBT CRISIS, DEPENDENT, DEPOSIT, DEVELOPING COUNTRIES, DISINTERMEDIATION, DIVIDENDS, ECONOMIC ACTIVITY, ECONOMIC POLICY, EMERGING ECONOMIES, EMERGING MARKET, EMERGING MARKET COUNTRIES, EMERGING MARKET ECONOMIES, EMERGING MARKETS, EQUITY RATIO, EUROPEAN CENTRAL BANK, FINANCIAL CRISIS, FINANCIAL DEVELOPMENTS, FINANCIAL INSTITUTIONS, FINANCIAL MARKETS, FINANCIAL STABILITY, FINANCIAL SYSTEM, FINANCIAL SYSTEMS, FISCAL BALANCES, FOREIGN BANK, FOREIGN BANKS, FOREIGN CLAIMS, GLOBAL FINANCIAL STABILITY, GLOBAL TRADE, GROSS DOMESTIC PRODUCT, HEDGE FUNDS, HOST COUNTRIES, HOST COUNTRY, HOST ECONOMIES, HOUSEHOLDS, INDIVIDUAL BANK, INFRASTRUCTURE FINANCE, INTERNATIONAL FINANCE, INTERNATIONAL FINANCIAL INSTITUTIONS, INVESTMENT BANKING, INVESTOR INTEREST, JURISDICTIONS, LARGE BANK, LENDER, LENDERS, LENDING CONDITION, LENDING CONDITIONS, LEVERAGE, LIABILITY, LIABILITY MANAGEMENT, LIMITED ACCESS, LIQUIDITY, LIQUIDITY POSITION, LIQUIDITY SUPPORT, LOAN, LOAN DEMAND, LOAN-TO-DEPOSIT RATIO, LOCAL CURRENCIES, LOCAL MARKETS, LONG-TERM FUNDING, MARKET CONDITIONS, MARKET CONFIDENCE, MARKET FINANCING, MATURITIES, MATURITY, MONETARY FUND, MONEY MARKET, MORTGAGES, NONBANK FINANCIAL INSTITUTIONS, NONPERFORMING LOANS, PARENT COMPANY, POLICY RESPONSES, PRIVATE BANKS, PRIVATE EQUITY, PROFITABILITY, PROVISION OF CREDIT, REAL SECTOR, RECAPITALIZATION, REGULATORY CONSTRAINTS, RELIANCE ON BOND, RETAINED EARNINGS, RISK MANAGEMENT, SENIOR BONDHOLDERS, SOLVENCY, SOLVENCY PROBLEMS, SOVEREIGN DEBT, SUBSIDIARIES, SUBSIDIARY, SUPERVISORY AUTHORITIES, SURCHARGES, SWAP, TIER 1 CAPITAL, TRADE FINANCE, TRADE FINANCING, WHOLESALE FUNDING,
Online Access:	http://documents.worldbank.org/curated/en/2012/04/16232165/european-bank-deleveraging-implications-emerging-market-countries https://hdl.handle.net/10986/10046
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