BIS Quarterly Review, December 2014

7 December 2014

The BIS Quarterly Review for December 2014: Buoyant yet fragile?

Remarks by Mr Claudio Borio, Head of the Monetary and Economic Department, and Mr Hyun Shin, Economic Adviser & Head of Research, at the media briefing on 5 December 2014.

International banking and financial market developments

Buoyant yet fragile?
Markets remain buoyant despite mid-October's spike in the volatility of most asset classes. This sharp retreat in risk appetite reflected growing uncertainty about the global economic outlook and monetary policy stance, as well as increased geopolitical tensions. As selling pressure increased, market liquidity temporarily dried up, amplifying market movements. More...
Highlights of the BIS international statistics
International banking activity expanded for a second consecutive quarter between April and June, regaining some of the ground lost in 2012 and 2013. Thanks to the latest quarterly increase, the annual growth rate of cross-border claims rose to 1.2% in the year to end-June 2014, the first move into positive territory since late 2011. More...

Special features

Currency movements drive reserve composition
A long-standing puzzle in international finance is the durability of the dollar's share of foreign exchange reserves - which remains above 60%, while the weight of the US economy in global output has fallen to less than a quarter. We argue that the dollar's role may reflect instead the share of global output produced in countries with relatively stable dollar exchange rates - the "dollar zone". If a currency varies less against the dollar than ... More...
Securitisations: tranching concentrates uncertainty
Even when securitised assets are simple, transparent and of high quality, risk assessments will be uncertain. This will call for safeguards against potential undercapitalisation. Since the uncertainty concentrates mainly in securitisation tranches of intermediate seniority, the safeguards applied to these tranches should be ... More...
Bank business models
We identify three business models using balance sheet characteristics of 222 international banks and a data-driven procedure. We find that institutions engaging mainly in commercial banking activities have lower costs and more stable profits than those more heavily involved in capital market activities, mainly trading. We also find that ... More...
Non-financial corporations from emerging market economies and capital flows
Non-financial corporations from emerging market economies (EMEs) have increased their external borrowing significantly through the offshore issuance of debt securities. Having obtained funds abroad, the foreign affiliate of a non-financial corporation could transfer funds to its home country via three channels: it could lend directly to its headquarters (within-company flows), extend credit to unrelated companies (between-company flows) or make a cross-border deposit in a ... More...

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