The Bank for International Settlements on Monday issued its
Quarterly Review for March 2012. The Review discusses the global effect of European bank deleveraging and also provides highlights from the latest BIS data sets on international banking and financial activity. The BIS, in cooperation with central banks and monetary authorities worldwide, compiles and disseminates several datasets on activity in international banking and financial markets. The latest available data on the international banking market refer to the third quarter of 2011. The discussion of international debt securities draws on data for the fourth quarter of 2011.
In short,
BIS data on European bank deleveraging shows some improvement in bank funding conditions, but also reveals some areas where costs of liquidity and currency funding have fluctuated variously.
Following special policy measures introduced by central banks around the beginning of December, European banks' funding conditions improved. Previously, many banks had been unable to raise funds in the unsecured senior bond market, and the cost of unsecured money market funding had risen to levels previously exceeded only during the 2008 crisis. Dollar funding had become especially expensive. Two three-year lending operations (LTRO) by the ECB and a wider set of collateral than was previously eligible relieved much of the stress. Furthermore, the cost of swapping euros into dollars fell in December, as central banks reduced the costs of their international swap lines. Short-term borrowing costs then declined and unsecured bond issuance revived.
Though it had been feared that new capital requirements would force banks to liquidate assets and restrict lending to meet the new requirements, hindering economic recovery, the data reveals that, despite some belt tightening, the negative effects of the new capital requirements were negligible.
At their peak in late 2011, funding strains fuelled fears that European banks would be forced to sell assets and reduce lending, thereby weakening real economic activity. New regulatory measures requiring banks to meet more stringent capital standards by mid-2012 added to these fears. European banks did sell certain assets and cut some types of lending, notably those denominated in dollars and those attracting higher risk weights. But, as other lenders stepped in, there was little evidence of any major impact on either asset prices or lending volumes.
The
BIS international statistics for the third quarter of 2011 do reflect some notable signs of a slowdown in international banking activity.
The aggregate cross-border claims of BIS reporting banks expanded slightly during the third quarter of 2011. The overall rise was exclusively caused by an increase in interbank claims. By contrast, claims on non-banks recorded their largest decline since the fourth quarter of 2009.
Despite the overall increase in cross-border claims during the period, there were several notable signs of a slowdown in international banking activity. First, cross-border lending to non-banks in all major developed economies with the exception of Japan contracted or remained virtually unchanged. Second, internationally active banks reported sharp reductions in their foreign claims on residents of the euro area economies experiencing fiscal difficulties. And last but not least, cross-border claims on emerging market economies declined for the first time in 10 quarters. Internationally active banks reduced lending to the residents of emerging Europe and Africa and the Middle East. The growth rates of cross-border claims on Asia-Pacific and Latin America and the Caribbean did remain positive; nevertheless, they fell considerably relative to those observed during the preceding two years.
It should be noted that conditions have changed dramatically since the period for which the statistics were collected, and these data sets merely provide a lens though which we may put current conditions into perspective.
This March quarterly review also features results of some special studies conducted by BIS: