Bankers without BordersGLOBAL FINANCIAL DEVELOPMENT REPORT 2017/2018Bankers without Borders© 2018 International Bank for Reconstruction and Development / The World Bank1818 H Street NW, Washington, DC 20433Telephone: 202-473-1000; Internet: worldbankSome rights reserved1 2 3 4 21 20 19 18 This World Bank report, Global Financial Development Report 2017/2018: Bankers without Borders, is not associated with the Grameen Foundations Bankers without Borders program, which engages volunteer consultants to donate their expertise to serve social enterprises and nonprofits in poor countries. For more information, visit bankerswithoutborders.This work is a product of the staff of The World Bank with external contributions. The findings, interpreta-tions, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. 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Further permission required for reuse.Cover design: Critical Stages, LLC.The report reflects information available up to June 30, 2017.ContentsGLOBAL FINANCIAL DEVELOPMENT REPORT 2017/2018 vForeword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiAcknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiiiAbbreviations and Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xviiOverview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Conceptual Framework, Stylized Facts, and the Role of Policy . . . . . . . . . . . . . . . . . . . 212 Brick-and-Mortar Operations of International Banks . . . . . . . . . . . . . . . . . . . . . . . . . . 413 Cross-Border Lending by International Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83Statistical Appendixes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119A Basic Data on Financial System Characteristics, 201315 . . . . . . . . . . . . . . . . . . . . . 121B Key Aspects of International Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143vi CONTENTS GLOBAL FINANCIAL DEVELOPMENT REPORT 2017/2018BOXESO.1 Main Messages of This Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3O.2 Views on International Banking by Practitioners: Global Financial Development Barometer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5O.3 Navigating This Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .141.1 A Brief Historical Perspective on International Banking . . . . . . . . . . . . . . . . . . . . . .221.2 Useful Defi nitions for Understanding International Banking in the Financial System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .231.3 The Rise of International Microfi nance Institutions . . . . . . . . . . . . . . . . . . . . . . . . .281.4 What Constitutes a Foreign Bank Claim? An Overview of the Banking Statistics of the Bank for International Settlements (BIS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .291.5 What Data Can Be Used to Understand the Activities of International Banks? . . . . .302.1 How Do Banks Expand Abroad? Branches or Subsidiaries? . . . . . . . . . . . . . . . . . . .452.2 Macroprudential Policies to Manage Credit Growth . . . . . . . . . . . . . . . . . . . . . . . .472.3 Foreign Banks in Africa: The Case of Ecobank . . . . . . . . . . . . . . . . . . . . . . . . . . . . .482.4 Dynamics of Postcrisis International Bank Retrenchment: From Globalization to Regionalization? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .512.5 Improving Rural Finance in Albania through Knowledge Exchange . . . . . . . . . . . . .532.6 Foreign Exchange Risk: The Case of Latvia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .552.7 The Lending Cyclicality of Foreign Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .572.8 The Transmission of International Monetary Policy via Foreign Banks in Mexico . .592.9 Lending Technologies of Foreign Banks and Their Approach to SME Lending . . . . .632.10 The Global Expansion of Chinese Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .652.11 Decentralized Global Banks and Multiple-Point-of-Entry Resolution . . . . . . . . . . . .722.12 The European Banking Union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .742.13 Intermediate Cooperation Approaches: The ASEAN and AustraliaNew Zealand Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .752.14 Intermediate Cooperation Approaches: The WAEMU Case . . . . . . . . . . . . . . . . . . .763.1 The Big Sur: Beyond Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .933.2 Bank-Intermediated Trade Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .943.3 Foreign Banks and the International Transmission of Monetary Policy. . . . . . . . . . .983.4 Substitution Effects during Crises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1033.5 De-Risking in Correspondent Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1053.6 Fintech in China: An Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .109FIGURESBO.2.1 The Impact of Global and Regional Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6O.1 Cross-Border and Local Claims by Foreign Banks, 200515 . . . . . . . . . . . . . . . . . . .7O.2 Number of Entries and Exits of Foreign Banks, 19952013 . . . . . . . . . . . . . . . . . . . .8O.3 Share of Foreign Bank Assets, by Region, 200513 . . . . . . . . . . . . . . . . . . . . . . . . . .8GLOBAL FINANCIAL DEVELOPMENT REPORT 2017/2018 CONTENTS viiO.4 Direction of Cross-Border Bank Lending, before and after the Global Financial Crisis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9O.5 Share of Regional Foreign Banks among Foreign Banks, Country-Level Averages, 19972013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9O.6 Trends in Bank Size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10O.7 Share of Developing Countries with Restrictions on Foreign Bank Entry through Alternative Modes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10O.8 Share of Home and Host Countries That Tightened Macroprudential Policies, 200513 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11O.9 Change in Bank Lending Associated with a 1 Percent Increase in Growth in GDP per Capita . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15O.10 Contribution of Local Deposits to Banks Total Funding . . . . . . . . . . . . . . . . . . . . .16O.11 Volume of Debt Issuance over Time for Real Purposes . . . . . . . . . . . . . . . . . . . . . . .17O.12 Average Change in Long-Term Debt Financing, by Ownership Type . . . . . . . . . . . .17B1.2.1 How the International Banking System Works . . . . . . . . . . . . . . . . . . . . . . . . . . . . .231.1 Foreign Financial Infl ows to Developing Countries: Syndicated Loans, Bonds, and Foreign Direct Investment, 200015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .261.2 Foreign Claims Reported to BIS by Counterparty Income Level, 200015 . . . . . . . .27B1.4.1 A Taxonomy of Foreign Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .291.3 Lending by International Banks: Foreign Claims on Counterparty Nonbank Private Sector (Country-Level Average by Region) and on Counterparty Sectors (Country-Level Average by Income Level), 200514 . . . . . . . . . . . . . . . . . . . . . . . .311.4 Cross-Border Bank Flows: Cross-Border Claims on Counterparty Regions and Foreign Claims on Counterparty Economies by Position Type and Income Level, 200515 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .321.5 Foreign Bank Presence through Subsidiaries: Share of Foreign Banks of Total Banks (Country-Level Average by Region, 19972013) and Share of Foreign Bank Assets of Total Bank Assets (Country-Level Average by Region, 200513) . . .331.6 Rise of SouthSouth Banking: Foreign Claims by Banks in BIS-Reporting Countries (200315) and Nationality of Majority Ownership of Banks in Developing Countries (19952013) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .341.7 Total Assets of Largest Banks (Absolute Amounts, on a Rolling Basis) and Size of Assets in Relation to National Economies (Combined Assets of Top Five Banks, Country-Level Average by Region), 200514 . . . . . . . . . . . . . . . . . . . . . . . .351.8 Regulatory Restrictions on Foreign Bank Entry and Ownership (Country-Level Average), 200011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35B2.3.1 Distribution of Ecobanks Branches and Offi ces (2015) and Assets (2011 and 2015) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49B2.4.1 Growth over Time of Foreign Banks by Number of Subsidiaries (200013) and Average Assets (200513) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51B2.4.2 Acquisitions, Transferals, Greenfi eld Entries, and Closures of Foreign Banks, 200013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52B2.7.1 Change in Bank Lending Associated with a 1 Percent Increase in GDP per Capita, 19992010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57viii CONTENTS GLOBAL FINANCIAL DEVELOPMENT REPORT 2017/20182.1 Contribution of Local Deposits, Equity, and Short-Term and Long-Term Funding to Total Bank Funding, 200014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58B2.10.1 Chinese Banks in the World: A Snapshot of Chinese Large Commercial Banks, 200515 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .652.2 Trends over Time of Foreign Bank Subsidiaries in Developing Countries by the Type of Country in Which Each Bank Is Headquartered, 200113 . . . . . . . . . . . . .67B2.11.1 Liquidity and Cross-Border Funding of European Bank Subsidiaries in Europe and Central Asia and Latin America and the Caribbean Regions . . . . . . . . . . . . . . .723.1 Restrictions to Capital Flows: Average across Economies of the South, 19902013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .863.2 Direction of Cross-Border Bank Lending, Selected Years . . . . . . . . . . . . . . . . . . . . .873.3 Average Net Syndicated Loan Outfl ows by Region, 200114 . . . . . . . . . . . . . . . . .893.4 Average Share of Intraregional Syndicated Loans of Total Cross-Border Syndicated Loans, by Region, 200114 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .893.5 Evolution of Cross-Border Bank Claims by Partner Economy, 200114 . . . . . . . . .903.6 Evolution of Cross-Border Syndicated Loan Flows by Partner Economy, 19962014 . . . . . . . . . . . . . . . . . . . . . . . . . . .