Inter-American Development Bank
facebook
twitter
youtube
linkedin
instagram
Abierto al públicoBeyond BordersCaribbean Development TrendsCiudades SosteniblesEnergía para el FuturoEnfoque EducaciónFactor TrabajoGente SaludableGestión fiscalGobernarteIdeas MatterIdeas que CuentanIdeaçãoImpactoIndustrias CreativasLa Maleta AbiertaMoviliblogMás Allá de las FronterasNegocios SosteniblesPrimeros PasosPuntos sobre la iSeguridad CiudadanaSostenibilidadVolvamos a la fuente¿Y si hablamos de igualdad?Home
Citizen Security and Justice Creative Industries Development Effectiveness Early Childhood Development Education Energy Envirnment. Climate Change and Safeguards Fiscal policy and management Gender and Diversity Health Labor and pensions Open Knowledge Public management Science, Technology and Innovation  Trade and Regional Integration Urban Development and Housing Water and Sanitation
  • Skip to main content
  • Skip to secondary menu
  • Skip to primary sidebar
  • Skip to footer

Ideas Matter

  • HOME
  • CATEGORIES
    • Behavioral Economics
    • Environment and Climate Change
    • Macroeconomics and Finance
    • Microeconomics and Competitiveness
    • Politics and Institutions
    • Social Issues
  • Authors
  • Spanish
deglobalización bancaria covid-19 coronavirus América Latina Caribe préstamos

Covid-19 and the Deglobalization of Banking

May 5, 2020 by Marina Conesa Martinez - Giulia Lotti - Andrew Powell Leave a Comment


The Financial Times recently reported a sharp drop of lending from US banks to European countries.[1] But this is best characterized as part of a wider deglobalization process. As national authorities urge banks to lend to firms within their borders and provide liquidity and guarantees for them to do so, global players are becoming less global.

The syndicated loan market is an important source of finance for large firms, big infrastructure projects and even some governments around the world. Moreover, the trends in this market reflect those in cross-border credit generally. The total global syndicated loan market was about US$4.5 trillion in 2019. Banks lend in syndicates to tap global liquidity, to spread risk, earn fees and to manage their capital allocation.

But in recent months, syndicated lending has declined significantly. Comparing the volume of syndicated loans extended from January to April of 2020 to that from January to April of 2019, the decline in cross-border lending has been much steeper than that within-borders. Cross border syndicated loans extended in the first four months of 2019 amounted to over US$728 billion whereas just US$615 billion was extended in the same period in 2020, a reduction of 15%.  Lending within national borders fell by about 7%. Figure 1 compares syndicated lending within national borders to cross-border syndicated lending for the two periods.

Figure 1. National and Cross-border Syndicated Lending

January to April 2019 versus January to April 2020

National and Cross-border Syndicated Lending, January to April 2019 versus January to April 2020

Source: Authors’ calculations based on Refinitiv. Data is as of April 24th.

Cross-border syndicated lending is an important source of financing for emerging and developing economies. And as illustrated in Figure 2, the agreement of new syndicated lending is closely associated with the actual flow (disbursements) of commercial lending to developing countries. Both fell sharply during the global financial crisis but then recovered. New syndicated loans amounted to about US$200 billion to developing countries in 2018 but are now falling.[2]  Moreover, developing countries have less ability to finance large fiscal programs in response to the Covid-19 crisis and their domestic financial systems tend to be smaller. For this reason, a deglobalization of banking may be particularly painful for these countries and add to the substantial redemptions that have occurred from equity and bond funds that invest in emerging markets. The 2020 Latin American and Caribbean Macroeconomic Report noted an outflow from bond funds equivalent to almost 4% of GDP for this region exceeding that experienced during the global financial crisis.[3]

Figure 2. Cross-border Syndicate Lending is an Important Element of Total Gross Credit Flows to Developing Countries

Cross-border Syndicate Lending is an Important Element of Total

Source: Authors’ calculations based on Refinitiv and International Debt Statistics.

Note: Gross flow of loans are the gross flows (disbursements) of non-guaranteed (PNG) long-term commercial bank loans and public and publicly guaranteed (PPG) commercial bank loans from private banks and other financial institutions from World Bank data. Low and middle-income countries are included.

Large shocks to the cross-border syndicated loan market pose a serious threat, as they can propagate through the lender network, impacting the stability of the international financial system and further reducing credit flows to emerging economies.

Network models from the academic literature suggest both resilience and fragility in the global financial system. In a forthcoming paper (Conesa, Lotti and Powell 2020), we find evidence of both. Focusing on cross-border syndicated lending to emerging and developing countries since 1993, we find that shocks propagate in the cross-border lending network through co-lending relationships, driven mostly by large players who occupy central positions in the network – typically the large global banks. At the same time, the network is resilient to shocks to banks that are located on its fringes and have limited co-lender relationships. The global financial crisis provoked changes in the network (Figure 3). During 2009 and 2010, it shrank with fewer banks (nodes, in network terminology) lending and fewer overall connections between them (known as edges in network parlance). But for those banks that did continue to lend, the density of the network increased (this density being a measure of the number of co-lender relations between the banks that actually remained as lenders). However, after 2010, as more banks started to lend again, density declined, that is, the network became less complete in terms of possible connections among banks. The main global banks became less global and new players entered, such as China’s official banks. We find results consistent with the idea that this reduction in density may have increased resilience to an average shock, in accordance with Acemoglu et al. (2015).

Figure 3. Density, Nodes and Edges in 2008-10 and 2019-20

Density, Nodes and Edges in 2008-10 and 2019-20

Source: Author’s calculations based on Refinitiv.

Note: Data for 2019 and 2020 comprise the months between January and April for comparison purposes. Density measures how close the network is to complete, nodes are the number of lending banks, and edges are the co-lending relationships.

Yet, the Covid-19 crisis is no ordinary or average shock.  It is already clear that it is having a significant impact. In keeping with the experience of the global financial crisis, the network is shrinking. While in January to April 2019, 281 financial institutions financed cross-border syndicated loans to developing and emerging countries for a total of US$79 billion, only 233 financed US$52 billion from January to April 2020. That is, the cross-border syndicated lending network at the beginning of 2020 had fewer players extending less financing. And as in the global financial crisis, the network that remains is more complete – the banks that are lending are entering into more relationships and seeking a greater diversification of risks. Density, in short, has risen. But this is also worrisome since according to the theory, and in line with our results, a denser network can be a vehicle for the propagation of large shocks. That is, while it seems that the effects of the crisis have not yet been fully revealed, there is a danger that this market will shrink further with greater impacts on the availability of credit for developing countries.

Figure 4 illustrates the lending network for the first four months of this year. Each bubble represents a bank, and the size of each bubble is in proportion to the number of co-lenders of that institution. The colors show the nationalities of the banks in question. Banks (bubbles) are placed close to each other when they syndicate loans together. As it is common for banks from the same country to form syndicates, bubbles of the same color tend to be close to each other. At the center of the network are the large global banks from the US, Europe and Japan. Taiwan is also important in the cross-border syndicated loan market, and some Chinese banks have now become central players. There are some clusters quite far away from the central mass. Typically, these consist of banks from some emerging countries that also participate in cross-border lending but that do not co-lend much with the central players.

Figure 4. Cross-Border Syndicate Lending to Developing Economies,

Network Visualization for January to April 2020

Cross-Border Syndicate Lending to Developing Economies

Notes: Authors’ calculations from Refinitiv.

Conesa, Lotti and Powell (2020) [4] find that large shocks that impact the central players propagate through the network and materially impact lending to developing countries. Banks lend less if their co-lenders lend less. Banks that are central have more co-lenders and so if they are impacted then naturally that will have a larger impact on total lending. From the standpoint of a borrowing country the reduction in financing is related to the proportion of loans received from banks that are central.

To identify which countries are at the highest risk of being hit by shock propagation, we look at how much of the volume borrowed through syndicated loans come from such banks. If central players focus on domestic lending and withdraw from the cross-border syndicated loan market, there may be greater “contagion,” reducing financing to developing countries further. We define central lenders as the top 10% of banks according to their centrality in the network.[5] In 2019, there were 726 cross-border syndicated loans to 79 developing economies. There was at least one central lender in 608 of those loans, co-lending with 14 other banks on average.

The countries most vulnerable to the reduction in credit from this market are those that obtain the most credit from these central players. In 2019, in Latin America and the Caribbean, these include Brazil (73% received from central lenders), Guyana (63% received from central lenders), Mexico (65%), Colombia (52%) and Panama (51%). Elsewhere in the developing world, countries such as Botswana, Kazakhstan, Kenya, Kuwait, Liberia, Malaysia, the Philippines, Oman, Russia, Saudi Arabia, South Africa and Togo all received more than 60% of syndicated loan financing from lenders who were central in the network.

Borrowers that tap international debt markets tend to be larger firms or banks. The syndicated loan market is a good bellwether for international credit flows. As in other crises, if larger firms are starved of this source of financing, they will tap domestic credit markets, potentially squeezing the availability of credit to smaller firms and households.

 

[1] See “US Banks Pull Back from Lending to European Companies” Financial Times April 24th 2020.

[2] This was more than 30% of all gross commercial credit flows to developing countries according to World Bank data.

[3] See also Corsetti & Marin (2020) and Davis (2020).

[4] Conesa, M., G. Lotti and A. Powell. 2020. “Resilience and Fragility in Global Banking.” Forthcoming. IDB.

[5] We employ something called “closeness centrality”, calculated as the reciprocal of the sum of the length of the shortest paths between the bank and all other banks in the network.


Filed Under: Macroeconomics and Finance Tagged With: #coronavirus, #COVID-19

Marina Conesa Martinez

Marina Conesa Martínez is a research assistant in the Research Department of the Inter-American Development Bank (IDB). Her work is focused on shock transmission and financial stability in emerging economies. In the past she also worked on the effects of trade and monetary policy on exports and productivity. Before joining the IDB, she worked at the Bank of Spain as a research assistant and in BBVA as an Intern. A Spanish citizen, Marina holds a master's degree in Specialized Economic Analysis from the Barcelona Graduate School of Economics and a degree in Economics from the University of Valencia.

Giulia Lotti

Giulia Lotti is Senior Country Economist for Haiti at the Inter-American Development Bank (IDB) and Research Associate at CAGE Warwick. She currently works in the Country Department Central America (CID), Haiti, Mexico, Panama and Dominican Republic. Previously, she worked for the Strategy Department and for the Department of Andean Countries of the IDB, and as a consultant for the World Bank. Her research interests include finance and development and multilateral bank lending. Giulia holds a PhD degree in Economics from the University of Warwick and a Master of Science in Economics from University College London (UCL).

Andrew Powell

Andrew Powell is the Principal Advisor in the Research Department (RES). He holds a Ba, MPhil. and DPhil. (PhD) from the University of Oxford. Through 1994 he dedicated himself to academia in the United Kingdom as Prize Research Fellow at Nuffield College, Oxford and Associate Professor (Lecturer) at London University and the University of Warwick. In 1995, he joined the Central Bank of Argentina and was named Chief Economist in 1996. He represented Argentina as a G20/G22 deputy and as member of three G22 working groups (on crisis resolution, financial system strengthening and transparency) in the late 1990’s. In 2001, he returned to academia, joining the Universidad Torcuato Di Tella in Buenos Aires as Professor and Director of Graduate Programs in Finance. He has been a Visiting Scholar at the World Bank, IMF and Harvard University. He joined the IDB Research Department in 2005 as Lead Research Economist and in 2008 served as Regional Economic Advisor for the Caribbean Region until returning to the Research Department as the Principal Advisor. He has published numerous academic papers in leading economic journals in areas including commodity markets, risk management, the role of multilaterals, regulation, banking and international finance. Current projects include new papers on capital flows and corporate balance sheets, on sovereign debt restructuring and on the preferred creditor status of multilateral development banks.

Reader Interactions

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar

Follow Us

Subscribe

Search

Related posts

  • Reducing Volatility from Cross-Border Banking Flows
  • Banks and the Global Financial Crisis 10 Years On: Lessons from Latin America and the Caribbean
  • US Banking Fragilities and the Potential Impacts on Latin America and the Caribbean
  • Can Psychometrics Improve Credit Access?
  • Boring Banks, Safe Economies?

About this blog

The blog of the IDB's Research Department shares ideas that matter on public policy and development in Latin America and the Caribbean.

Footer

Banco Interamericano de Desarrollo
facebook
twitter
youtube
youtube
youtube

    Blog posts written by Bank employees:

    Copyright © Inter-American Development Bank ("IDB"). This work is licensed under a Creative Commons IGO 3.0 Attribution-NonCommercial-NoDerivatives. (CC-IGO 3.0 BY-NC-ND) license and may be reproduced with attribution to the IDB and for any non-commercial purpose. No derivative work is allowed. Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC- IGO license. Note that link provided above includes additional terms and conditions of the license.


    For blogs written by external parties:

    For questions concerning copyright for authors that are not IADB employees please complete the contact form for this blog.

    The opinions expressed in this blog are those of the authors and do not necessarily reflect the views of the IDB, its Board of Directors, or the countries they represent.

    Attribution: in addition to giving attribution to the respective author and copyright owner, as appropriate, we would appreciate if you could include a link that remits back the IDB Blogs website.



    Privacy Policy

    Copyright © 2025 · Magazine Pro on Genesis Framework · WordPress · Log in

    Banco Interamericano de Desarrollo

    Aviso Legal

    Las opiniones expresadas en estos blogs son las de los autores y no necesariamente reflejan las opiniones del Banco Interamericano de Desarrollo, sus directivas, la Asamblea de Gobernadores o sus países miembros.

    facebook
    twitter
    youtube
    This site uses cookies to optimize functionality and give you the best possible experience. If you continue to navigate this website beyond this page, cookies will be placed on your browser.
    To learn more about cookies, click here
    X
    Manage consent

    Privacy Overview

    This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
    Necessary
    Always Enabled
    Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
    Non-necessary
    Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.
    SAVE & ACCEPT