Keywords

banking crisis, capital flows, financial integration

This paper describes three different channels through which the global financial crisis affected European banks. The first channel was related to the direct losses that they took as a result of their exposure to mortgage-backed securities in the US. The second channel was related to the deterioration of global liquidity conditions after the failure of Lehman Brothers in September 2008. Finally, the third channel appeared in countries with severe macroeconomic imbalances, whose sharp correction during the financial crisis caused a deep recession, resulting in significant credit losses in their banks. A better understanding of these issues is required in order to define appropriate policies to enhance the resilience of European banks.