Since the outbreak of the financial crisis in 2007, Europe’s banks have been gradually retreating from the US market, thereby making room for others to step in. At their peak in September 2007, euro-area banks held assets equivalent to 50% of all foreign bank assets. Since then, this fraction has plummeted to 30% (USD 973 bn) today. At the same time, Canadian and Japanese banks seized the opportunity and significantly increased their presence. With assets now totalling USD 655 bn, Canadian banks have more than doubled their pre-crisis US involvement. Japanese banks similarly increased their total assets to USD 487 bn. Despite these changes, foreign banks’ combined share in the total US market has been relatively stable at around 23%.
The reduced presence of euro-area banks is hardly surprising as the entire European banking market is under substantial pressure to deleverage and re-focus on domestic markets. Also, with USD funding conditions remaining tight, EU banks are not only pulling out of the US but also Asian countries. The surge in Canadian and Japanese activity can be attributed to their historically close links with the US and the modest impact of the financial crisis on both countries’ financial systems.
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Published with kind permission of Deutsche Bank Research.