Credit Suisse CEO and chairman Michael Buholzer/Getty Images

Financial Globalization 2.0

Aftershocks from the global financial crisis have sharply reduced cross-border capital flows, as lenders, especially in Europe, have focused on domestic markets. But this retrenchment has, paradoxically, improved the overall health and stability of the global financial system.

WASHINGTON, DC – In the decade since the financial crisis began in August 2007, the contours of global finance have shifted dramatically. The total value of cross-border capital flows has shrunk by 65% over the last ten years, a decline that reflects, in particular, the sharp reduction in international banking activities.

The question for us is what figures like these can tell us about the health of global finance today. Are they evidence that “financial globalization” – the international movement of capital – has lurched into reverse? And if it has, would that be such a bad thing?

The current retrenchment reflects greater risk aversion and awareness since the bubble began to burst in late 2007. But, according to new research from the McKinsey Global Institute, what is emerging is a more resilient version of global financial integration.

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