Total assets of the largest banks as a share of GDP increased rapidly in major OECD countries in the years leading up to the financial crisis, says Bank Competition and Financial Stability. In contrast, in emerging economies, which were affected by the crisis to a lesser degree, the asset-to-GDP ratio was stable. In the case of China, the ratio actually decreased ahead of the financial crisis.
The proportional increase in assets of the largest French and British banks is particularly noticeable in the late 1990s and 2000s, with the three biggest British banks holding assets worth almost 340% of the UK’s GDP on the eve of the global financial crisis and 260% for the French big three. In 1995, the figure for both countries was less than 80%.
Some of the competitive practices in the banking system (or lack thereof) may have exacerbated the crisis, according to the report, while the authors warn that some government policies–for instance, enforced mergers–may have adverse consequences for competition.
See also www.oecd.org/finance
©OECD Observer No 286 Q3 2011