• October 7th, 2019
• By Midsilver Investment Limited

Cross-border bank lending is characterized by a few dominant connections between banks in one nation and borrowers in another. These significant links predominantly exist between leading advanced economies. The concentration of these links grew until the Great Financial Crisis (GFC) and has only marginally decreased thereafter. This concentration is more pronounced in interbank lending than in lending to sectors outside the banking industry. Notably, even with a marked decline in interbank lending post-GFC, the concentration within this segment remains elevated.

Cross-border banking is distinctly marked by its concentration, with a handful of sizeable bilateral connections making up most of the worldwide cross-border bank credit. The most substantial connections are predominantly between advanced nations. In contrast, connections that include emerging market economies (EMEs) are generally smaller. The concentration in these cross-border banking ties grew leading up to the GFC and has sustained its intensity. Concentration is notably more intense for interbank lending on a cross-border scale than for lending to non-banking sectors. Even though the proportion of cross-border interbank credit has dwindled post-GFC, its concentration persists.

The concentration's significance in cross-border bank connections became evident during the GFC, as various studies have highlighted. In this article, we delve deeper into the distribution based on size and the sectoral makeup of cross-border banking ties at a country level. The GFC notably impacted cross-border interbank credit, as well as the model where local banks obtain funding from global banks across borders. Using data from the BIS locational banking statistics (LBS), we outline the bilateral (by country) pattern of cross-border bank credit from banks situated in one country to borrowers—both banks and non-banks—in another.

The initial part of this article outlines the distribution by size of cross-border banking connections, emphasizing that the concentration is primarily due to connections among advanced economies. The subsequent section discusses the sectoral breakdown, centering on the consistent heightened concentration in cross-border interbank connections compared to those with the non-bank sector.