Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

How badly such a facility was needed becomes clear only when we put together the local and global activities of Europe’s banks, to get a full view of their spectacularly overinflated growth. America’s banks were very big and very important to global finance. But it was in Europe that bank finance had grown most disproportionately.47 Europe’s banks had always been large. Unlike the United States, where equity and bond markets were the main sources of business finance, Europe’s economies had long relied heavily on bank lending. But spreading out across the EU and feeding off the transatlantic financial circuit, the European banks had grown to gargantuan size. In 2007 the three largest banks in the world by assets were all European—RBS, Deutsche Bank and BNP. Combined, their balance sheets came to 17 percent of global GDP. The balance sheet of each of them came close to matching the GDP of its home country—Britain, Germany and France—the three largest economies in the EU.48 In tiny Ireland the situation was far more extreme. The liabilities of its banks added up to 700 percent of GDP. France and the Netherlands rivaled each other, with liabilities at 400 percent of GDP. The banks of Germany and Spain had liabilities amounting to 300 percent of GDP. By this standard every member of the eurozone was at least three times more “overbanked” than the United States. Furthermore, Europe’s banks were far more dependent on volatile “wholesale,” market-based funding than their US counte...