Declining capital flows have been accompanied by a shift in the structure of capital flows away from bank lending towards equity flows and, in particular, foreign direct investment (FDI) (Bussiere, Schmidt and Valla 2016). The changing patterns of global shocks explain why it was only over time that the fault lines of certain business models of banks became visible.
At the current juncture, the global banking system has built up larger capital and liquidity buffers to withstand future shocks. But low interest rates and high valuations are creating an environment conducive to risk taking and to an underassessment of risks. European banks have different strategies for operating in global financial markets and have thus been affected quite differently by the financial crisis.