When we speak of the global banking industry, we are generally talking about an aggregate of banks worldwide that together control the capital markets of the world, set interest rates, and regulate the flow of capital around the globe. Base on information from the International Financial Services London (IFSL) research (2008), between 2006-2007, the total worldwide assets of the largest 1,000 banks was counted at $74.2 trillion. This was considered a record high, up 16.3% from the previous year, which had itself seen a prodigious rise of 5.4%.
Of the assets held by these banks, banks in the European Union held the largest share at 53%. This represented a growth of about 10%, as EU banks had held 43% of these assets the previous year. The growth in their share was taken at the expense of the Japanese, whose share of the world banks’ assets went from 21% to 10% during the same period. United States share remained relatively stable in comparison to other sectors, staying steady at about 14%. The remaining percentage was divvied up among other Asian and European countries outside the EU.
Systemic crises in the global banking industry can be triggered by various forms of risk. Some of these include liquidity risk (the risk that the bank will not have enough liquid cash on hand to meet requests); credit risk (the risk that the bank will become overextended if borrowers do not repay their loans); and interest rate risk (the risk that rising interest rates will squeeze out the profit margin of deposits and loans). Various types of banking crises have developed throughout history. The recent subprime mortgage crisis is a perfect example of a credit crisis which had repercussions throughout the global banking industry. Several banks around the world, most notably UK banks Lloyds TSB and Barclay’s, suffered severe falls on the stock exchange as a result of falling investor confidence in the true value of those banks’ assets.