Dr. Steffen Murau| steffenmurau.com

‘Re-assessing Fragmentation of the Euro Area Banking System. Offshore Channels for Cross-Border Banking Activities’ (with Torsten Ehlers)

It is an established assessment that since the Eurocrisis, the Euro area banking system has been fragmented. Representing the Eurozone’s monetary architecture as a web of interlocking balance sheets, we carve out four different types of fragmentation that pertain to different parts of banks’ balance sheets and a different set of counterparties. The first type affects the size, scope, and business model of EA banks; the second the cross-border interbank lending among EA banks; the third the monetary policy transmission via EA banks; and the fourth the harmonization of public backstops for EA banks. We argue that the first two types of fragmentation can in principle be mitigated by using ‘offshore channels’ for cross-border banking activities. Euro area banks are not restricted to using EUR-denominated instruments inside the Eurozone monetary jurisdiction but may carry out cross-border activities in other units of account than the EUR (notably the USD) and in other booking locations (notably via their branches in the United Kingdom and the United States). Using data derived from the BIS’s international debt securities and locational banking statistics, we analyse whether the use of these offshore channels warrants a re-assessment of established findings on the fragmentation of the Euro area banking system.

Presentations at the workshop “Offshore Finance in International Political Economy” at Freie Universität Berlin (09/2023) and the workshop “Continuity and Transformation in the (Shadow) Banking System since the Global Financial Crisis” at the European University Institute (10/2023).

Co-author:
Torsten Ehlers, Bank for International Settlements and International Monetary Fund

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