BIS Quarterly Review, December 2017

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 devastating hurricanes in the United States, a number of geopolitical threats, and further steps taken by some of the major central banks towards a gradual removal of monetary accommodation.

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 willingness of global banks to retain these country exposures on their balance sheets instead of seeking guarantees or hedging them.