BIS Quarterly Review, December 2021

This foreword discusses how non-bank financial intermediaries can make the financial system more efficient but also more unstable, and how regulation of this sector can be improved.

Risk appetite proved resilient during most of the review period, but a wake-up call from renewed Covid-19 concerns curtailed the gains in late November.

This special feature analyses decentralised finance (DeFi), a new form of crypto intermediation that uses automated protocols on blockchains and stablecoins to facilitate fund transfers. Even though links with traditional finance are currently contained, DeFi warrants closer monitoring because of high leverage, limited shock-absorbing capacity and built-in interconnectedness.

This special feature discusses the systemic risks and policy implications of open-ended bond funds. During recent episodes of stress, elevated redemptions spread across funds, suggesting the need for macroprudential tools to bolster their resilience. 

This special feature analyses the increased use of short-term foreign exchange hedging instruments in several emerging Asian economies in relation to their outward portfolio investment, which exposes institutional investors and asset managers to US dollar funding disruptions. 

This special feature examines how private capital markets have become a global force in all aspects of firm financing and restructuring. Among emerging market economies, their footprint is particularly strong in Asia.

This special feature explores the market's role in the transition to a fairer and more sustainable economy. It finds that bonds from firms with larger carbon emissions trade at marginally higher yields and that social bonds are issued at a premium (socium) relative to conventional bonds.