Global banking and geopolitics through time

What it contains

BIS Working Paper No 1338, published on 20 March 2026 by Lorenz Emter, Laura Kuitunen, Arnaud Mehl, Peter McQuade, Swapan Pradhan and Goetz von Peter, examines asymmetries in the effects of geopolitical events on international bank credit, contrasting adverse events, such as the 2022 invasion of Ukraine, with positive events, such as the fall of the Berlin Wall in 1989. Using confidential data from the BIS international banking statistics from 1977 to 2024, it analyses credit dynamics between up to 12,000 pairs of countries through the lens of their geopolitical differences, with gravity models as the benchmark.

The results show that geopolitical differences affect international banking activity over time: negative events reduce credit by 10 to 20% more between geopolitical blocs than within blocs, while positive events have no comparable effect on credit, even when they boost trade flows. The authors suggest that the asymmetry stems from the higher level of trust required for international bank credit compared with trade in goods, because the former has a more pronounced intertemporal dimension and demands a greater commitment over time.

The study notes that the literature on geopolitical fragmentation has concentrated on trade and foreign direct investment, less on finance, and on the effects of negative events and of 2022; its analysis covers several historical episodes and offers a long-run empirical basis for thinking about country risk, cross-border exposures and the resilience of credit flows. The views are the authors’ own and do not necessarily reflect those of the BIS, the ECB and the Eurosystem, or the member central banks.

Summary prepared by the Dominican Republic Risk Management Club from a reading of the original document, with the source verified on 12 October 2026. It does not replace reading the official text and is not advice.

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