Abstract
This article considers the link between the financialization of European banks and US monetary power. We focus first on the Global Financial Crisis of 2008-09 (GFC), arguing that crisis origins should largely be located in European banks’ financialization and their becoming a banker to both the US and the global US dollar-based offshore banking system. The interdependence between this system and the US economy constrained US monetary policy before the crisis, and forced the Federal Reserve to assume the Lender of Last Resort (LOLR) function for the entire offshore system, despite much of this system involving lending between non-US counterparties. European financialization caused reduced US monetary autonomy and therefore power. This article argues for greater attention in IPE to European financial developments in the GFC’s implications. The importance of European banking has been maintained post-crisis and Europe has moved to a substantial surplus position, suggesting Europe’s continued importance.
Acknowledgements
We thank three anonymous reviewers for material help in improving this article, especially in such difficult times. Iain Hardie’s work here has been heavily influenced by collaboration with Sylvia Maxfield over a number of years. Her contribution is gratefully acknowledged.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes
1 Bernanke et al. see US investors as pushed in the same direction. McCauley (Citation2018), in contrast, argues European investors bought riskier investments than their US counterparts.
2 For example, 37.7 percent of the assets of one programme, Ormond Quay, were from US borrowers (Acharya & Schnabl, Citation2009; McDowell, Citation2017).
3 The alternative capabilities approach is most commonly seen as originating in International Relations with Morganthau (Citation1948).
4 The BoE’s position was worse, with peak US dollar liquidity provision approaching twice the level of reserves. William Poole, President of the FRB of St Louis, voted against swap lines for the ECB and the Swiss National Bank because of the level of their foreign exchange reserves (Broz, Citation2015, p.12).
5 Geithner suggests this is something the Fed should look to ensure does not occur in future (Federal Reserve, Citation2008b, p.26), so it is regarded as regrettable.
6 Also Australia, Denmark, New Zealand, Norway and Sweden.
7 Chile, Dominican Republic, Iceland, India, Indonesia, Peru and Turkey.
8 Euro area, UK and Swiss bank cross-border claims declined by US$9.5 trillion 2007-16, while those of other regions increased (McCauley et al., Citation2017, p. 9).
9 Source: ECB.
10 Source: ONS, BEA.
11 The permanent recipients were the euro area, the UK, Switzerland, Canada and Japan, with Australia, Brazil, South Korea, Singapore, Sweden, Denmark, Norway and New Zealand again added.
12 European investment in U.S. bonds increased by over $1 trillion, 2008-2016.
Additional information
Notes on contributors
Iain Hardie
Iain Hardie is Senior Lecturer in International Relations at the University of Edinburgh. He is the co-author of Chains of Finance, author of Financialization and Government Borrowing Capacity in Emerging Markets and co-editor of Market-Based Banking and the International Financial Crisis. His work has appeared in World Politics, Review of International Political Economy, New Political Economy and Socio Economic Review.
Helen Thompson
Helen Thompson is Professor of Political Economy in the Department of Politics and International Studies at Cambridge University. Her most recent book is Oil and the Western Economic Crisis published by Palgrave in 2017. Her work on the Eurozone crisis and the political economy of Brexit has appeared in New Political Economy and the British Journal of Politics and International Relations.