BIS Quarterly Review, September 2016

18 September 2016

The BIS Quarterly Review for September 2016: Dissonant markets?

Remarks by Mr Claudio Borio, Head of the Monetary and Economic Department, and Mr Hyun Song Shin, Economic Adviser & Head of Research, at the media briefing on 16 September 2016.

International banking and financial market developments

Dissonant markets?
Central banks reasserted their sway over financial markets in recent months, after two quarters punctuated by bouts of sharp volatility. Markets proved resilient to a number of potentially disruptive political developments. Nevertheless, questions lingered as to whether the configuration of asset prices accurately reflected the underlying risks. With global growth showing moderate but persistent signs of strengthening and supportive monetary policy, investors' risk appetite seemed to return during the period under review. As a result, volatility in financial markets subsided, commodity prices edged ... More...
Highlights of global financial flows
International bank claims (cross-border bank claims plus local claims in foreign currencies) rose in the first quarter of 2016, for the first time since end-March 2015. On a year-on-year basis, international bank claims declined by 4.5%, undercut by an 8% year-on-year contraction in interbank claims. The stock of international debt securities continued to grow, with positive net issuance in the first and second quarters of 2016. By the end of Q2 2016, international debt securities were 2.1% above their level of a year earlier. The year-on-year growth rates of both US dollar cross-border loans to borrowers outside... More...

Statistical initiatives

Recent enhancements to the BIS statistics
The BIS has been enhancing its statistical offering to support monetary and financial stability analysis, in close coordination with central banks and international organisations. Some of this work has been undertaken in the context of the Data Gaps Initiative (DGI) endorsed by the G20. In the current issue of the Quarterly Review, the BIS is introducing new statistics in the following areas: - Detailed locational banking statistics shedding further light on the geography of international banking, specifically the claims and liabilities of banks in each ... More...

Special features

Covered interest parity lost: understanding the cross-currency basis
Covered interest parity verges on a physical law in international finance. And yet it has been systematically violated since the Great Financial Crisis. Especially puzzling have been the violations since 2014, even once banks had strengthened their balance sheets and regained easy access to funding. We offer a framework to think about these violations, stressing the ... More...
Foreign exchange market intervention in EMEs: what has changed?
Since the Great Financial Crisis, emerging market economies have been more active in FX markets. As rising dollar debt and increased exposure to global financing flows have affected the demand and supply of foreign currency, financial stability has become an increasingly important motive for interventions. Adjustments in intervention tactics and instruments are consistent with a greater importance of financial stability considerations. Timely interventions can be effective in improving FX market liquidity, and there are credibility gains from holding foreign reserve buffers in countries with ... More...
Domestic financial markets and offshore bond financing
Firms in emerging market economies markedly increased their issuance of bonds in offshore markets after the Great Financial Crisis. By contrast, increases in offshore bond issuance by firms in advanced economies were more muted. An empirical analysis suggests that the less developed state of financial markets in emerging economies may have encouraged firms there to step up their offshore bond issuance as external financing costs fell. Firms appear to use the proceeds of offshore bonds to boost their holdings of short-term assets. This may ... More...
The ECB's QE and euro cross-border bank lending
There is growing evidence that the currency distribution of cross-border credit affects international monetary policy spillovers. While the existing literature has concentrated primarily on the US dollar, this article focuses on the euro. We find that the ECB's quantitative easing of January 2015 had a larger positive impact on cross-border bank credit in lender-borrower pairs with a higher share of euro-denominated bank claims. The effect was especially pronounced for lending to advanced economies outside the euro area. By contrast, the estimated effects on crossborder lending to ... More...

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