European bank deleveraging and global credit conditions: implications of a multi-year process on long-term finance and beyond

Erik Feyen and Ines Gonzalez del Mazo

No 6388, Policy Research Working Paper Series from The World Bank

Abstract: This paper assesses European bank deleveraging and its impact on global credit conditions. Before the onset of the global financial crisis, European banks had rapidly expanded their foreign lending activities. However, European banks have since been tightening credit conditions in Europe more for longer-term lending, a trend that banks expect to continue. European financial stress has been transmitted to emerging markets that have experienced a sustained deterioration of credit standards and funding conditions. As a result, European lending in emerging markets has been lagging behind lending of other international banks although European banks remain a dominant source of funding."Good"bank deleveraging is still necessary from a prudential perspective. Although acute"bad"deleveraging pressures due to financial stress, which can trigger a credit crunch, have subsided recently on account of decisive policy measures, tail risks remain. Curtailing lending will probably be a core component of this multi-year deleveraging process. Taken together, European bank deleveraging warrants close attention.

Keywords: Banks&Banking Reform; Access to Finance; Debt Markets; Financial Intermediation; Bankruptcy and Resolution of Financial Distress (search for similar items in EconPapers)
Date: 2013-03-01
New Economics Papers: this item is included in nep-ban
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Citations: View citations in EconPapers (8)

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