Are Benefits from Financial Globalization Overstated?
Capital flows, cross-border bank lending, especially to emerging markets, and securitization were major aspects of the 2007-08 boom in financial globalization. But government restrictions on banks that were bailed out in the financial turmoil of late 2008 and 2009 is reducing foreign bank lending and external financing for emerging markets and promoting financial nationalism. Countries are proposing greater regulation on the securitization and trading of several financial instruments and measures like taxes on financial transactions to reduce excessive risk-taking and leveraging. If realized, these restrictions could impact the scale of financial globalization and cross-border bank credit flows. The recovery of global liquidity and financial globalization will depend on the speed at which financial institutions recuperate from the financial crisis, rebuild their balance sheets and increase leveraging.
