The British are leaving, the British are leaving!

And so are the Swiss and the Germans. And from the perspective of the Chinese, so are the Americans and, the British, yet again.

I'm talking about the banks: The British, Swiss, German and American banks are all retrenching -- either exiting or selling off their foreign investments and operations for cash -- and refocusing their attention to their home economies.

None of that should be particularly surprising. With an urgent need for capital and in various stages of nationalization, if you're a multi-national bank, global opportunities take far lower priority to domestic credit problems - especially when politics is involved.

And politicians are taking full advantage. As Gordon Brown said on Monday regarding the Royal Bank of Scotland (RBS), “Almost all their losses are in subprime mortgages in America.” And using UK taxpayer money yet a second time to bail out British banks’ foibles in America’s credit overdose, doesn't play well in Paddington.

Spurred on by politics, regulators across the globe are going to de-multinationalize their major banks. Some -- like the regulators in the UK and US -- will do it by force, requiring the sale of foreign investments and operations as a precondition to further government investment. Others, like the Swiss, will do it be re-jiggering their capital requirements to prejudice domestic activities over foreign ones. 

But how they do it is far less important than the consequences of their actions. From an American perspective, we should anticipate a significant foreign pullback that adversely affects liquidity in many of our fixed-income markets and access to credit for our largest corporations. Low-margin corporate lending and money markets are likely to be among the worst hit.

But I also expect that as banks in developed countries pull in their foreign tentacles, the effects in the developing world could be pronounced - particularly as nationalized banks wield credit as arms of the state. (And here I would remind readers of RBS’ decision to pull its credit lines from Pdvesa, not 24 hours following the UK Government’s first injection of capital in the fall.)

Call it isolationism, protectionism - whatever you want. To me, it's simply the reprioritization of domestic realities over potential foreign opportunity. But I would also offer that some of this is out of pure economic necessity. In good times, governments (both ours and others'), failed to see the risk looming in the ballooning balance sheets of their largest financial-services firms. And when early on in this crisis, in response to capital-markets pressures, governments around the world agreed to guarantee enormous amounts of private-sector bank liabilities, I would argue that many of these governments failed to adequately recognize the consequences of their actions.

Where foreign-exchange reserves once looked healthy, by converting private-sector debt to public debt, reserve ratios (let alone, public debt to GDP ratios) fell far out of whack. (And while we may lament the trillion-dollar-plus bailout of our domestic banks, given the sheer size of our domestic economy, it's far easier for the US to shoulder this load than the UK. To me, this is the driving force behind the Pound’s collapse of late against the dollar.)

But financial services retrenchment has begun. And, as I highlighted above, I expect that politics will only accelerate the pace.