Measuring the global crunch

Measuring the global crunch Official statistics tell us where we've been, rather than where we're going. But if the numbers are any good, they help to provide a bit of context and definition to our hunches and intuitions about what's going on in the world. So if there's anyone left on the planet who's still sceptical that we've been living through the mother of all credit crunches, I would direct you to quarterly banking statistics published today by the central bankers' bank, the BIS. These show a plunge of almost $1.9 trillion or just over 5% between the third and fourth quarters of 2008 in banks' international assets, their overseas loans and investments. In other words, there was a massive contraction of lending across national borders. Banks called in their loans to overseas banks and other overseas borrowers on a colossal scale: it was the biggest shrinkage in banks' international assets since records began at the end of 1977. In fact it's exceedingly rare for there to be any contraction at all in cross border lending. So this represents an unusual reversal of financial globalisation. Of course we already knew that banks were calling in credit last autumn in a panicky and manic way, after the collapse of Lehman. Now we have a measure of that panic (though note that these figures are about the stuff that goes on to banks' balance sheets, not other forms of credit outside the banking system so it's not the whole story of the crunch). Now it won't surprise you that the shrinkage in international business was particularly pronounced for British banks The overseas assets of British banks shrank $891bn during the whole of 2008 which represents an astonishing 65% of the contraction of http://www.hanirestauranttehran.co.uk all overseas lending and investing by the world's leading banks in that year. That repatriation by the Brits of lending is merely the corollary of an eye watering withdrawal of credit from the UK by foreign banks: the liabilities to overseas lenders of our banks shrank $793bn in 2008. Why were British banks so exposed to the global credit crunch? Well it's because in the preceding few years they expanded their overseas lending at a breathtaking and unsustainable rate. According to BIS figures, British banks' overseas liabilities increased from $3.4tn in December 2003 to $7.3tn in December 2007. In that context, the recent fall to $6.1tn in British banks' cross border liabilities does not look like the end of the story especially if cross border flows of credit in general continue to diminish. To put it another way, there's a strong likelihood that overseas funding of British banks will continue to be squeezed significantly in the coming weeks and months. Some of that will be absorbed by British banks calling in their overseas lending. But it also means that there's no realistic prospect in the coming months of our banks being weaned off their new dependence on funding provided by taxpayers unless, that is, we wish to risk a further serious contraction of lending by banks to UK households and businesses. Complain about this comment (Comment number 1) Comment number 2. At 17:22 29th Apr 2009, GRIMUPNORTH77 wrote: When saw the title thought might not have been about banking http://www.eddiechesterremovals.co.uk I was wrong! I'm Robert Peston, the BBC's business editor. This blog is my take on the business stories and issues that matter. There is less lending by banks. Bankers got paid a lot of bonuses. Banks haven't got any money without Government support. Bankers are upset because they're not getting bonuses anymore. Paradoxically bankers are also upset about an increase in tax rates above 150k HA. Banks share prices are going down. Banks share prices are going up. Some people at the very top of banks that caused this crisis have left with great big pension payments and pots.