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The imbalances of the world’s economies are reflected by their banks

The finances of banks are a mirror of the economies where they are based. In emerging markets, the surplus of customer deposits over loans (ie, excess savings) at listed banks was about $1.6 trillion in 2008, compared with a deficit of about $1.9 trillion at rich-world banks. Banks in emerging markets, which have vast branch networks to suck in deposits from thrifty families and companies, park their surplus with the state, by buying government bonds or keeping it in central banks. The state in turn acts as the international recycling agent for those excess savings: it lends them to Western countries through its foreign reserves or through a sovereign-wealth fund. Meanwhile, overextended Western banks do the exact opposite: they borrow from capital markets to plug the hole created by having more loans than deposits. In 2009, the funding gap was smaller, reflecting the slow rebalancing of Western banks’ finances.

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