The end of the great inversion: offshore national banks and the global financial crisis

Here we present a novel analysis of the geographic evolution of international banking since 1980, which addresses still-unanswered questions about the role of offshore centers in the global financial crisis, and the post-crisis stability of these centers. We show that post-1980 regulatory shifts prompted a “Great Inversion” of offshore banking, wherein conventional Euromarket activity was partially overshadowed by the growth of European ‘midshore’ center national banks. As a result, offshore jurisdictions 1) were likely more responsible for pre-crisis regulatory failures in a home than host regulator capacity, and 2) internalized far greater domestic fiscal risks than in previous crises.