Asian banks storm ahead ten years on from global financial crisis

The shape of the global banking industry ten years on from the global financial crisis has changed drastically as analysis from global law firm Linklaters shows that Asian banks have stormed ahead of their counterparts.

  • European bank assets reduced by 52% to $13.3 trillion over last ten years
  • Assets of Asian banks grew almost six-fold to $23trillion
  • Unprecedented wave of regulation means some markets fared better than others

In 2007, the top 20 banks by total assets was overwhelmingly dominated by European banks. But by 2017, the total assets held by European banks reduced by 52% to $13.3 trillion.

The most dramatic change to the banking landscape has been the spectacular rise of Asian banks, particularly those in China and Japan. Chinese banks comprise the top four places in today’s rankings. Assets of Asian banks have grown almost six-fold over the past decade from $4 trillion to over $23 trillion.

Michael Kent, Global Head of Finance & Projects at Linklaters, says:

“Ten years on from the administration of Lehmans, the global banking industry is unrecognisable. Banks across the world have seen an unprecedent wave of regulation hit them and some markets have fared better than others.”

He argues that in the years immediately following the collapse of Lehmans, banks were forced to divest assets and focus on cleaning up their balance sheets. And then came a stream of regulation, aimed at preventing a repeat of the financial crisis.

He says:

“The regulatory response around the world was significant. In Europe more so than elsewhere, regulators moved from a light touch model to a far more rigorous system, clamping down on risky banking practices and strengthening banking standards.”

Our analysis shows a number of areas where regulation, designed to bolster the system, has made a difference. For example, banks have been forced to increase their capital buffers over the last ten years with banks in Europe and the UK now holding 5.5% of their assets as a capital buffer, up from 3.4% in 2008.

Analysis also shows that the proportion of outstanding over-the-counter (OTC) interest rate derivatives that are centrally cleared is estimated to have increased from 24% in 2008 to 61% globally in 2016.

Kent says:

“Prior to the administration of Lehman’s, clearing of OTC instruments was not mandatory. The crash showed that clearing was an effective safety mechanism when properly undertaken. Accordingly, this was a focus of new regulation, with it becoming mandatory to clear many OTC derivative instruments.”

As the ten year anniversary of the Lehmans administration approaches on 15 September, many question whether we are nearing the end of a decade of regulation.

Peter Bevan, Global Head of Financial Regulation at Linklaters, says:

“Although it seems as though we have been buried underneath a wave of regulation over the last ten years, there is more yet to come. With benchmark reforms, extension of the Senior Managers Regime and Fundamental Review of the trading book, there are some significant pieces that still need to be worked through.”

However, he argues that the regulatory burden will prove its worth. He says:

“As you wade through pages and pages of new rules on a weekly basis, some question whether it will make a difference. Parts of the legislation are yet to be tested and in some areas, we’re seeing similar trends to pre-crisis. However, when you step back and look at where the regulation has bolstered the financial system, the world looks like a safer place.”