On the sidelines of a conference in Prague this year, a central bank governor from the central and eastern European region spotted a Washington-based powerbroker for the international banking industry in the crowd of policymakers and financiers. The monetary policy official marched towards him and, unprompted, proffered his thoughts on the state of global finance. Barely pausing after introducing himself, he issued a stark warning: "I was a banker in the communist era when we were banned from developing cross-border financial markets. But 20 years or so after this, it now seems we are rolling back on globalization, moving closer to the era of the Iron Curtain."
The central banker’s comments, backed up by his own biography, threw the spotlight on a growing phenomenon: the re-emergence of home bias among global banks – a form of financial deglobalization – amid the eurozone crisis, deleveraging and tighter financial regulations.
 |
This prospect amounts to a reversal of historical trends. The home bias of financial intermediaries and institutional investors receded in the 1990s and 2000s amid global economic expansion, albeit with multiple shocks.