Definition of Balkanisation

Balkanisation is a way to describe the breakdown of cross-border banking, as nervous lenders retreat in particular from the more troubled parts of the eurozone or at least try to isolate operations within national boundaries.

The term stems from the historical break-up of the Balkans, whose national boundaries have fragmented at various points over the past 200 years.

Between 2008 and 2012, Balkanisation has made steady inroads across the sector. Nervous bank boards have sought to ringfence problems abroad and national regulators have encouraged them in their mission.

It is a trend that has broader thinkers worried. Mario Draghi, president of the European Central Bank, has talked of the need to “repair this financial fragmentation”. Mark Carney, head of the global regulatory body the Financial Stability Board, has warned that deglobalising finance will hurt growth and jobs by “reducing financial capacity and systemic resilience”.

In 2012, the process is under way on many fronts, as recent research reports from Barclays and Morgan Stanley have pointed out, with the most acute trends evident within the eurozone thanks to persistent nervousness about a break-up of the currency union.  [1]

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