Yesterday, the Bank for International Settlements (BIS), an international organization that serves as a bank for central banks, published the BIS Quarterly Review, September 2010 International banking and financial market developments. The report includes an overview of recent developments in financial markets and detailed highlights from the latest BIS data on international banking and financial activity. The report concludes that, recent months have seen “investors shift their attention from the funding problems of European sovereigns to the diverse global growth outlook and the implications for asset prices."
The report also includes four special features articles:
Debt Reduction After Crises – This article predicts a much more significant reduction in private sector debt, particularly of households, than has so far taken place after the recent crisis. The authors examined historical data and found that “[f]inancial crises tend to be followed by a protracted period of debt reduction in the non-financial private sector.” In fact, the paper found that “a period of debt reduction followed 17 out of 20 systemic banking crises that were preceded by surges in credit.” The authors note that the costs of this process in forgone output are hard to quantify, but “there are reasons to believe that they need not be high provided that the banking sector problems that led to the crisis are fixed.”
The Collapse of International Bank Finance During the Crisis: Evidence From Syndicated Loan Markets – This article examines developments in syndicated loan markets during the financial crisis. Ultimately, the authors argue, with supporting economic analysis, that changes in deal structures and purposes during the financial crisis “suggest that credit supply constraints aggravated the sharp decline of syndicated lending.”
Options For Meeting the Demand For International Liquidity During Financial Crises – This article analyzes efforts by various governments and central banks to obtain assurance of access to foreign currency, brought on by the heightened the awareness of the risk of a sudden shortage of foreign currency following the financial crisis. The article contrasts “multilateral measures, such as reserve pooling or structures such as the IMF, with bilateral means, such as swap arrangements, and unilateral action by building up foreign exchange reserves.” The authors review the advantages and disadvantages of both multilateral and bilateral measures, but predict that “if international arrangements are deemed to be inadequate, unilateral actions will continue.”
Bank Structure, Funding Risk and the Transmission of Shocks Across Countries: Concepts and Measurement - This article “outlines a broad framework for assessing system-wide funding risks and analyzing banks’ role in the transmission of financial shocks across countries.” In doing so, the authors highlight the “need to complement data on banks’ consolidated balance sheets with information that provides a geographically disaggregated picture of those balance sheets.” Finally, the authors assess the ability of BIS international banking statistics to provide measures of system-wide funding risk, with their ultimate conclusion that the BIS statistics “have several though not all of the desired statistical properties.”