BIS Quarterly Review, December 2012

In the three months to early December, forecasters cut their projections for global economic growth, yet the prices of most growth-sensitive assets rose. These assets benefited from further loosening of monetary policies and perceptions that some major near-term downside risks to the world economy had diminished. In particular, asset valuations reacted positively to new policy measures aimed at tackling the euro area crisis. They were also supported by news suggesting that a sharp and prolonged fall in Chinese economic growth was less likely. However, downside risks remained. Uncertainty about fiscal policy in the United States, which was on course to tighten substantially in the near term, encouraged cash hoarding and weighed on the prices of assets most vulnerable to budget cuts. More...

The BIS, in cooperation with central banks and monetary authorities worldwide, compiles and disseminates several data sets on activity in international financial markets. This chapter summarises the latest data for the international banking and OTC derivatives markets, available up to end-June 2012. One box discusses shifting credit patterns in emerging Asia; a second reports on a change in the treatment of unallocated positions in the BIS locational banking statistics; and a third analyses the use of reference rates in securities and syndicated loan markets. More...

Natural disasters resulting in significant losses have become more frequent in recent decades, with 2011 being the costliest year in history. Sebastian von Dahlen (International Association of Insurance Supervisors) and Goetz von Peter (BIS) explore how risk is transferred within and beyond the global insurance sector and assess the financial linkages that arise in this process. While most of the risk is retained within the global insurance market, part is transferred through retrocession and securitisation to other financial institutions and the broader financial market. These links appear small, but little is known about who exactly ultimately bears the corresponding risks, as no comprehensive international statistics exist.

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Cross-border bank lending to emerging markets dropped sharply in the second half of 2011 as the euro area crisis intensified. Stefan Avdjiev (BIS), Zsolt Kuti (Magyar Nemzeti Bank) and Előd Takáts (BIS) use the BIS international banking statistics to identify the key drivers of this decline. Their results suggest that the latest contraction in cross-border bank lending was largely linked to the deteriorating health of euro area banks.

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Basel III introduces the first global framework for bank liquidity regulation. As monetary policy typically involves targeting the interest rate on interbank loans of the most liquid asset - central bank reserves - it is important to understand how this new requirement will impact the efficacy of current operational frameworks. Morten Bech (BIS) and Todd Keister (Rutgers University) extend a standard model of monetary policy implementation to include the new liquidity regulation. Based on this model, they find that the regulation does not impair central banks' ability to implement monetary policy, but operational frameworks may need to adjust.

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The BIS has revised its debt securities statistics to enhance their comparability across different markets. This feature by Branimir Gruić and Philip Wooldridge (BIS) sketches the main changes and the reasoning behind them. International issues have been redefined as debt securities issued outside the market where the borrower resides, and statistics combining international and domestic issues are being released for the first time. The revised statistics highlight the growing size and internationalisation of bond markets.

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