BIS Quarterly Review, December 2017

BIS Quarterly Review  | 
03 December 2017
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 |  116 pages  |  ePub

The BIS Quarterly Review for December 2017: Paradoxical tightening echoes bond market "conundrum"

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 1 December 2017.

International banking and financial market developments

Markets and the real economy continued their year-long honeymoon during the period under review, which started in early September. Amid further synchronised strength in advanced economies (AEs), mostly solid growth in emerging market economies (EMEs) and, last but not least, a general lack of inflationary pressures, global asset markets added to their year-to-date stellar performance while volatility stayed low. This "Goldilocks" environment easily saw off the impact of two ... More...
Credit risk transfers shift a bank's country exposures from one counterparty country to another. Risk transfer patterns can shed light on how creditor banking systems assess and manage credit risks across counterparty countries. These patterns are closely linked to the business models and international footprint of global banks and corporates. Global banks have taken on more credit risks vis-à-vis some major emerging market economies - in particular in Asia. This points both to the enlarged international footprint of corporates and banks from these countries, and to the ... More...

Special features

Previous research has explored the impact of private sector debt service ratios (DSRs), ie debt payments relative to income, on medium-term macroeconomic outcomes. This special feature, based on a study of 18 economies, finds that monetary policy shocks, in turn, have a significant impact on DSRs. We show that a monetary tightening leads to a significant and persistent increase in DSRs, with higher effective lending rates on the stock of debt outweighing a decline in the debt-to-income ratio. Moreover, the ... More...
The responsiveness of aggregate expenditure to shocks depends on the level and interest rate sensitivity (duration) of household debt, as well as on the liquidity of the assets it finances. Household-level spending adjustments are more likely to be amplified if debt is concentrated among households with limited access to credit or with less scope for self-insurance. The way in which household indebtedness affects the sensitivity of aggregate expenditure matters for both macroeconomic and financial stability. Financial institutions can suffer balance sheet distress from ... More...