BIS Quarterly Review, March 2017

6 March 2017

The BIS Quarterly Review for March 2017: Beyond swings in risk appetite

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 3 March 2017.

International banking and financial market developments

Beyond swings in risk appetite
Many asset prices have traded sideways since the release of the previous BIS Quarterly Review in early December, while investors waited for clues on a number of sources of uncertainty. Market participants expected a change in the policy mix in the United States, with a greater role for fiscal policy, continued gradual tightening of monetary policy, a push for deregulation, and a more protectionist trade stance. However, the precise nature and timing of policy changes and their impact remained unclear. In February, stock markets rallied in the United States, while sovereign yields in a number of euro area countries came under pressure as investors shifted their ... More...
Highlights of global financial flows
Growth in international bank claims resumed in the second and third quarters of 2016, following year-on-year declines in late 2015 and early 2016. The recovery was led by 3.8% year-on-year growth in claims on the non-bank sector, while interbank claims contracted by 3.2% in Q3 2016. The stock of international debt securities grew steadily at the rate of 3.8% year on year in the fourth quarter of 2016, helped by a pickup in banks' net debt issuance to 2.2%. Net debt securities issuance by non-banks also increased slightly, as outstanding securities rose 4% year on year in Q3 2016 and 4.6% in Q4. US dollar credit to non-bank borrowers outside the United States grew by $420 billion between end-Q1 and end-Q3 2016. When newly reported data for credit extended by banks in ... More...

Special features

Consumption-led expansions
GDP growth has increasingly been led by consumption. However, consumption-led expansions tend to be significantly weaker than when growth is driven by other components of aggregate demand, often because of the build-up of imbalances. We show that while factors such as credit growth and rising house prices can boost consumption in the short run, the incidence of consumption-led growth and rising debt service ratios significantly dampen growth in the medium to long run. Policies that address the build-up of imbalances and strengthen investment are therefore ... More...
The new era of expected credit loss provisioning
Following the Great Financial Crisis, accounting standard setters have required banks and other companies to provision against loans based on expected credit losses. While the rules adopted by the two main standard-setting bodies differ, banks must in both cases provision for expected credit losses from the time a loan is originated, rather than awaiting "trigger events" signalling imminent losses. In the short term, provisions may rise but the impact on regulatory capital is expected to be limited. However, the new rules are likely to alter the behaviour of banks in credit downturns, potentially dampening procyclicality. Banks, supervisors and market participants must prepare for their ... More...
The quest for speed in payments
This feature looks at technology in payment systems. It compares the diffusion of real-time gross settlement (RTGS) systems for wholesale payments with that of faster systems for retail payments (fast payments). RTGS systems emerged in the 1980s and were adopted globally within a span of 30 years. Fast payments followed in the early 2000s, offering instant payments on a 24-hour, seven-day basis. So far, the diffusion of fast payments mirrors that of RTGS, and it is primed to take off. Yet even while adoption of fast payments is under way, the next generation of payment systems, such as those based on distributed ledger technology, is under ... More...
The bond benchmark continues to tip to swaps
By the 1990s, basis risk had caused bond markets, like money markets before them, to start shifting from the use of government rates as benchmarks to the use of private ones. Developments since the Great Financial Crisis of 2007-09, including derivatives reforms and Libor scandals, had the potential to disrupt this shift. Yet BIS data on derivatives turnover indicate that interest rate swaps continue to gain on government bond futures for hedging and positioning at the long end of the yield curve. However, the ease of unwinding positions in futures may stop swap rates from completely ... More...

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