Deleveraging in European banking and financial stability, 2010–13

The deleveraging happened by squeezing foreign assets, particularly southern countries&s; assets by northern countries&s; banks after the European debt crisis and by increasing capital. The decline in leverage has been higher for European banks than for the banks of other advanced countries such as the US, Canada, Australia. The deleveraging that occurred in the European banking system after the great financial crisis did not reduce financial fragility. The aim of Basel III, the popular name for the package, was to improve financial stability mainly by increasing capital that banks must keep available in case of financial stress or outright default. The pattern of growth of both assets and liabilities is very different in 2010 with respect to 2011. In 2012, the growth of both assets and liabilities was very subdued, and banks&s; balance sheets almost stopped growing. In 2013, the major change regarding liabilities concerned &s;remaining assets&s;, which are reported derivatives held for trade and some margins for derivatives trading.