Volatility is back, according to BIS review
26 March 2018 Basel
Image: Shutterstock
Sharp corrections in global equity markets, rising and falling equity valuations, and unusual levels of intraday volatility have shown that volatility is back, according to the Bank for International Settlements’ (BIS) quarterly review of international banking and financial market developments.
The report, which was released on 11 March 2018, focused on the return of volatility in the first quarter of 2018, as well as the changing roles of lenders in Asia in the wake of the three crises episodes, including the Asia financial crisis of 1997 to 1998, the great financial crisis of 2007 to 2009 and the European sovereign debt crisis of 2010 to 2012.
BIS noted that as in a game of musical chairs, the banks that have dominated the business of lending to Asia have been changing places over the last two decades. When Japanese banks cut their credit sharply, and Indonesia, Malaysia, the Philippines, Thailand and then Korea came under pressure, European banks took their place.
On the eve of the GFC in June 2008, the leading bank creditors of emerging Asia were now the banks from Europe. Banks from Europe and the UK jointly held almost 50 percent of the international consolidated claims on these five Asian countries, while Japanese banks accounted for only 15 percent. Against this backdrop, Chinese banks have become an increasingly important provider of international bank credit, to borrowers both within and outside Asia.
Other topics covered included the pre-eminence of cash, even as retail payment systems become faster and more convenient. The report observed that since 2000, cash in circulation is up from 7 percent to 9 percent of gross domestic produce (on average).
The report also considered the creation of new US intermediate holding companies (IHCs) in response to the requirements of the Dodd-Frank Act and whether this has had the effect of reducing the assets on the balance sheets of non-US banking organisations or simply shifted them elsewhere.
BIS noted that every new IHC created has reduced its assets and therefore its required capital. While ‘old’ IHCs kept their total US assets unchanged at$1.3 trillion, the new IHCs shrank their trading assets by $50 billion, moving or cutting Treasury securities but keeping agency and corporate bonds roughly unchanged.
The report, which was released on 11 March 2018, focused on the return of volatility in the first quarter of 2018, as well as the changing roles of lenders in Asia in the wake of the three crises episodes, including the Asia financial crisis of 1997 to 1998, the great financial crisis of 2007 to 2009 and the European sovereign debt crisis of 2010 to 2012.
BIS noted that as in a game of musical chairs, the banks that have dominated the business of lending to Asia have been changing places over the last two decades. When Japanese banks cut their credit sharply, and Indonesia, Malaysia, the Philippines, Thailand and then Korea came under pressure, European banks took their place.
On the eve of the GFC in June 2008, the leading bank creditors of emerging Asia were now the banks from Europe. Banks from Europe and the UK jointly held almost 50 percent of the international consolidated claims on these five Asian countries, while Japanese banks accounted for only 15 percent. Against this backdrop, Chinese banks have become an increasingly important provider of international bank credit, to borrowers both within and outside Asia.
Other topics covered included the pre-eminence of cash, even as retail payment systems become faster and more convenient. The report observed that since 2000, cash in circulation is up from 7 percent to 9 percent of gross domestic produce (on average).
The report also considered the creation of new US intermediate holding companies (IHCs) in response to the requirements of the Dodd-Frank Act and whether this has had the effect of reducing the assets on the balance sheets of non-US banking organisations or simply shifted them elsewhere.
BIS noted that every new IHC created has reduced its assets and therefore its required capital. While ‘old’ IHCs kept their total US assets unchanged at$1.3 trillion, the new IHCs shrank their trading assets by $50 billion, moving or cutting Treasury securities but keeping agency and corporate bonds roughly unchanged.
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