The End of the Great Inversion: Offshore National Champion Banks and the Global Financial Crisis

Abstract

Here we present a novel analysis of the development of offshore banking since 1980, which addresses important but still - unanswered questions about the both 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, from the old foreign-bank-hosting model, to a new “offshore national champion bank” model. As a result, offshore jurisdictions 1) were - counterintuitively - 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.