Cross-Border Banking in the Balance

Cross-border banking should not become a casualty of the clean-up act required for the eurozone crisis, argues Erik Berglof, the Chief Economist of the European Bank for Reconstruction and Development. The gains from financial integration in Europe have been great, particularly through the actions of foreign subsidiaries of large European banks in emerging central and eastern European countries, which have paid dividends to investors, home countries and host countries. Because of their irresponsible lending, though, Berglof writes, “mobilizing support for European banks will be hard; extending it to [foreign] subsidiaries will be even harder.” A coordinated team effort is required on both rescue and regulation. Berglof thus argues that a concerted effort needs to be made to preserve the gains from financial integration in Europe over the last decade, and he cites the Vienna Initiative that followed the financial crisis of 2008 as a possible model. – YaleGlobal