BIS Quarterly Review September 2015 International banking and financial market developments BIS Quarterly Review Monetary and Economic Department Editorial Committee: Claudio Borio Benjamin Cohen Dietrich Domanski Hyun Song Shin Philip Turner General queries concerning this commentary should be addressed to Benjamin Cohen (tel +41 61 280 8421, e-mail: [email protected]), queries concerning specific parts to the authors, whose details appear at the head of each section, and queries concerning the statistics to Philip Wooldridge (tel +41 61 280 8006, e-mail: [email protected]). This publication is available on the BIS website (www.bis.org/publ/qtrpdf/r_qt1509.htm). © Bank for International Settlements 2015. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated. ISSN 1683-0121 (print) ISSN 1683-013X (online) BIS Quarterly Review September 2015 International banking and financial market developments EME vulnerabilities take centre stage ........................................................................................... 1 Markets roiled as China jolts investors ................................................................................ 1 Strong dollar, commodity plunge add to EME weakness ............................................ 4 Diverging monetary policies continue to drive markets .............................................. 8 Bond yields stuck at low levels ............................................................................................... 9 Box 1: Volatility and evaporating liquidity during the bund tantrum ................. 10 Box 2: Dislocated markets .................................................................................................... 14 Highlights of global financing flows ........................................................................................... 17 Takeaways .................................................................................................................................... 17 Recent developments in the international bank and debt markets ..................... 18 Global foreign currency credit to the non-financial sector ...................................... 21 Global cross-border credit .................................................................................................... 21 Box : Capital flowed out of China through BIS reporting banks in Q1 2015 ... 28 International debt securities ................................................................................................. 31 Early warning indicators ......................................................................................................... 34 Statistical Features Introduction to BIS statistics .......................................................................................................... 35 Locational banking statistics ................................................................................................. 36 Consolidated banking statistics ........................................................................................... 37 Debt securities statistics ......................................................................................................... 39 Box 1: Changes to the BIS international debt securities statistics ........................ 40 Derivatives statistics ................................................................................................................. 41 Box 2: Revisions to BIS exchange-traded derivatives statistics ............................. 42 Global liquidity indicators ...................................................................................................... 44 Credit to the non-financial sector ...................................................................................... 45 Debt service ratios .................................................................................................................... 46 Residential property price indices ...................................................................................... 47 Effective exchange rate indices ........................................................................................... 48 BIS Quarterly Review, September 2015 iii Enhanced data to analyse international banking ................................................................... 53 Stefan Avdjiev, Patrick McGuire and Philip Wooldridge Overview of the enhancements ........................................................................................... 54 Putting banks’ international business in context .......................................................... 57 Box 1: The geography of international banking ........................................................... 58 Box 2: New tables on the international banking statistics ....................................... 60 Understanding banks’ counterparties ............................................................................... 61 Monitoring sources of funding ............................................................................................ 62 Box 3: Revisions to historical LBS and CBS ..................................................................... 64 Dissecting the currency composition ................................................................................. 65 Completing the enhancements ............................................................................................ 67 A new database on general government debt ....................................................................... 69 Christian Dembiermont, Michela Scatigna, Robert Szemere and Bruno Tissot Measuring government debt across countries .............................................................. 70 Features of the new BIS data set ......................................................................................... 72 Box 1: Why do government debt figures differ so widely across data sets? .... 74 Measuring valuation effects .................................................................................................. 76 Box 2: Where do the data come from? ............................................................................ 78 Tracking debt dynamics around crises .............................................................................. 82 Conclusions .................................................................................................................................. 86 How much income is used for debt payments? A new database for debt service ratios ......................................................................................................................................... 89 Mathias Drehmann, Anamaria Illes, Mikael Juselius and Marjorie Santos Methodology ............................................................................................................................... 91 Box 1: Does using aggregate information to construct aggregate DSRs introduce distortions? ............................................................................................... 94 Box 2: Derivation of the DSR formula ............................................................................... 98 The evolution of DSRs over the last 15 years ................................................................ 99 Conclusion ................................................................................................................................. 102 Economic Features International monetary spillovers ............................................................................................. 105 Boris Hofmann and Előd Takáts Interest rate correlations ...................................................................................................... 107 Spillovers in short- and long-term interest rates ....................................................... 109 Policy rate spillovers .............................................................................................................. 111 iv BIS Quarterly Review, September 2015 Economic impact of monetary spillovers ...................................................................... 114 Conclusions ............................................................................................................................... 115 The rise of regional banking in Asia and the Pacific .......................................................... 119 Eli Remolona and Ilhyock Shim Trends in regional banking activity .................................................................................. 120 Box 1: The importance of Hong Kong SAR and Singapore ................................... 122 Regional banks’ foreign affiliates and business models .......................................... 124 Box 2: ASEAN banking integration and lessons from Europe ............................. 128 Selected financial stability issues ...................................................................................... 130 Conclusion ................................................................................................................................. 133 BIS statistics: Charts ................................................................................................................... A1 Special features in the BIS Quarterly Review ......................................................... B1 List of recent BIS publications ........................................................................................... C1 Notations