Edited by Thorsten Beck - Vox

VOX Research-based policy analysis and commentary from leading economists
liabilities on national lines. So a French bank with liabilities in the US is required to
keep matching assets in US, while having a US dollar shortage at home. The same tends
to happen within Europe. When a Dutch bank is collecting deposits via the Internet in
Spain, the local supervisor starts asking for matching assets in Spain. Local holdings of
liquidity and capital are suboptimal (Allen et al 2011). The Internal Market in Banking
is being reversed.
What does theory say?
The financial trilemma indicates that the three objectives of financial stability, crossborder
banking, and national financial supervision are not compatible (Schoenmaker
2011). One has to give. The trilemma makes clear that policymakers have to make a
choice on cross-border banking. While we were slowly evolving towards European
financial supervision with the establishment of the new European Supervisory
Authorities and the European Systemic Risk Board, the financial crisis has thrown us
back towards national supervision.
What are the facts?
De Haan et al (forthcoming) examine the developments of large banks in the aftermath
of the first financial crisis. They select the 60 largest banks on the basis of Tier 1 capital,
as reported in the Top 1,000 world banks rankings by The Banker. The dataset is divided
into three samples of top European banks, top American banks, and top Asian banks.
Table 1 reports the geographical segmentation of these banks for the years 2006 to
2009. European banks are the most international, with close to 50% of business abroad.
This may be due to the integrated European banking market. But even when looking at
their business outside the region, European banks are the most international – 25% of
their business is in the rest of the world. American banks are catching up; their business
in the rest of the world rose from 14% in 2006 to 21% in 2009. So, the European and
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