Risk-taking by banks played a critical role in the global crisis and Eurozone crisis. This column introduces a new eReport that focuses on four aspects of excessive risk-taking by banks, highlighting the causes and the cures. The eReport applies the best available theory and data, bringing together the main insights and views that have emerged from the crisis.

Understanding credit crunches is a major concern for policymakers. This column suggests that the severity of a credit crunch in a specific area depends on the hierarchical structure of the banks operating in that credit market. It explores the Italian case and shows that, in the months following the collapse of Lehman Brothers, banks retracted disproportionally from markets that are more distant from their headquarters.

How did foreign banks adjust their investment and lending decisions during the global financial crisis? This column uses a new and comprehensive database to show that the crisis dramatically halted foreign direct investment in banking and that foreign banks often cut back on lending more than their domestic competitors. While exits have so far been limited, this is likely to change in the coming years.

Foreign banks on domestic soil have always been controversial. This column presents a newly collected, comprehensive database on bank ownership for 137 countries over the period 1995–2009. It shows that current market shares of foreign banks average 20% in OECD countries and 50% elsewhere. In developing countries, however, foreign bank presence is correlated with less private credit.

The dissent brewing throughout Europe hinges on the question of whether the financial burdens of the Eurozone crisis should be shared between weak and strong. This column presents a new paper arguing that the wealthier, more stable economies don’t have much choice.

Responses to the financial crisis have largely been along national lines. Governments rescued banks headquartered within their borders, and supervisors are requiring banks to match their assets and liabilities at a national level. This column says stable cross-border banking is incompatible with national financial supervision, which means the European banking market needs European authorities.

This CEPR report argues that policy reforms in micro- and macro-prudential regulation and macroeconomic policies are needed for Europe to reap the important diversification and efficiency benefits from cross-border banking, while reducing the risks stemming from large cross-border banks.