Capital Flows and the Risk-Taking Channel of Monetary Policy - - PowerPoint PPT Presentation

Capital Flows and the Risk-Taking Channel of Monetary Policy

Valentina Bruno Hyun Song Shin Central Bank of Turkey Conference October 8-9, 2012

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 1

Two Questions

• What configuration of exchange rates are consistent with rebalancing of

global demand?

• To what extent will exchange rate appreciation stem capital inflows?

— What are the financial stability implications of exchange rate appreciation? — What are the feedback effects between leverage and exchange rate appreciation? — How do the answers depend on stance of advanced economy monetary policy?

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 2

A Popular Narrative

• “Low interest rates maintained by advanced economy central banks are

key drivers of — Cross-border capital flows to emerging economies — Credit booms and overheating for capital recipient economies — Overshooting of real exchange rates”

• Are these claims true?
• What are the mechanisms?

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 3 Borrowers in A Borrowers in B Borrowers in C Banks in A Banks in B Banks in C Global Banks Wholesale Funding Market

Figure 1. Topography of global liquidity

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 4 Borrowers in A Borrowers in B Borrowers in C Banks in A Banks in B Banks in C Global Banks Wholesale Funding Market

Figure 2. Topography of global liquidity

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 5

• 2.0
• 1.5
• 1.0
• 0.5

0.0 0.5 1.0 1.5 2.0

06-Jan-99 21-Jul-99 02-Feb-00 16-Aug-00 28-Feb-01 12-Sep-01 27-Mar-02 09-Oct-02 23-Apr-03 05-Nov-03 19-May-04 01-Dec-04 15-Jun-05 28-Dec-05 12-Jul-06 24-Jan-07 08-Aug-07 20-Feb-08 03-Sep-08 18-Mar-09 30-Sep-09 14-Apr-10 27-Oct-10 11-May-11 23-Nov-11

Trillion dollars

Net interoffice assets Large time deposits Borrowings from banks in U.S. Borrowings from others Securities Loans and leases Cash assets

Figure 3. Assets and liabilities of foreign banks in the U.S. (Source: Federal Reserve H8 weekly series on assets and liabilities of foreign-related institutions)

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 6

• 400
• 200

200 400 600 800 20-Apr-88 17-May-89 13-Jun-90 10-Jul-91 05-Aug-92 01-Sep-93 28-Sep-94 25-Oct-95 20-Nov-96 17-Dec-97 13-Jan-99 09-Feb-00 07-Mar-01 03-Apr-02 30-Apr-03 26-May-04 22-Jun-05 19-Jul-06 15-Aug-07 10-Sep-08 07-Oct-09 03-Nov-10 30-Nov-11

Billion dollars

Net interoffice assets of foreign banks in US

Figure 4. Net interoffice assets of foreign banks in U.S. given by negative of Federal Reserve weekly H8 series

• n “net due to related foreign offices of foreign-related institutions”

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 7

10 20 30 40 50 60 70 80 90 2006 H2 2007 H1 2007 H2 2008 H1 2008 H2 2009 H1 2009 H2 2010 H1 2010 H2 2011 H1

(%)

Asia United States Other Europe Other euro area Belgium, Italy, Spain, Portugal, Ireland, Greece Figure 5. Amount owed by banks to US prime money market funds (% of total), based on top 10 prime MMFs, representing $755 bn of $1.66 trn total prime MMF assets (Source: IMF GFSR Sept 2011, data from Fitch).

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 8

100

50 100 150 200 250 300 350 400 450 500

Mar.1999 Mar.2000 Mar.2001 Mar.2002 Mar.2003 Mar.2004 Mar.2005 Mar.2006 Mar.2007 Mar.2008 Mar.2009 Mar.2010 Ireland Spain Turkey Australia South Korea Chile Brazil Egypt South Africa

Figure 6. External claims (loans and deposits) of BIS reporting banks on counterparties listed on right (Source: BIS locational banking statistics Table 7A)

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 9

100

50 100 150 200 250 300 350

Mar.1999 Mar.2000 Mar.2001 Mar.2002 Mar.2003 Mar.2004 Mar.2005 Mar.2006 Mar.2007 Mar.2008 Mar.2009 Mar.2010 Australia South Korea Indonesia Malaysia Thailand

Figure 7. External claims (loans and deposits) of BIS reporting banks on counterparties listed on right (Source: BIS locational banking statistics Table 7A)

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 10

100

100 200 300 400 500 600 700 800

Mar.1999 Mar.2000 Mar.2001 Mar.2002 Mar.2003 Mar.2004 Mar.2005 Mar.2006 Mar.2007 Mar.2008 Mar.2009 Mar.2010

Slovakia Poland Ireland Spain Turkey

Figure 8. External claims (loans and deposits) of BIS reporting banks on counterparties listed on right (Source: BIS locational banking statistics Table 7A)

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 11

100

500 1,000 1,500 2,000 2,500 3,000

Mar.1999 Mar.2000 Mar.2001 Mar.2002 Mar.2003 Mar.2004 Mar.2005 Mar.2006 Mar.2007 Mar.2008 Mar.2009 Mar.2010

Latvia Lithuania Estonia Iceland

Figure 9. External claims (loans and deposits) of BIS reporting banks on counterparties listed on right (Source: BIS locational banking statistics Table 7A)

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 12

Risk-Taking Channel

Borio and Zhu (2008)

• Pivotal role of banking sector

— Short-term interest rates and term premium

• Leverage cycle

— Expansion phase driven by low measured risks — Measured risks are dampened during expansions — “Excess elasticity” (Borio and Disyatat (2011))

• Global liquidity

— US dollar wholesale bank funding market — European global banks

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 13

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Trillion pounds Equity Other Liabilities Total MMF funding Customer Deposits

Figure 10. Total Liabilities of Barclays (1992 - 2007) (Source: Bankscope)

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 14

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Trillion pounds Total Assets Risk-Weighted Assets

Figure 11. Barclays, risk-weighted assets and total assets (Source: Bankscope)

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 15

Barclays: 2 year change in assets, equity, debt and risk-weighted assets (1992 -2010)

y = 0.9974x - 0.175 R2 = 0.9998

• 1,000
• 800
• 600
• 400
• 200

200 400 600 800 1,000

• 1,000
• 500

500 1,000

2 year asset change (billion pounds) 2 year change in equity, debt and risk-weighted assets (billion pounds) 2yr RWA Change 2yr Equity Change 2yr Debt Change

Figure 12. Barclays: 2 year change in assets, equity and debt (1992-2010) (Source: Bankscope)

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 16

Credit Supply Model

• Vasicek credit risk model (backbone of Basel II)
• Turn on its head as credit supply model

— Given sticky equity, credit supply is determined by risk-taking decision  =  1 − 1+

1+

 ∈ (0 1)  is ratio of notional debt to notional assets

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 17

Amplification Channel

Increased risk-taking Dampened volatility

Capital inflows and currency appreciation Decline in measured risks

Decline in Bank funding cost

Figure 13. Risk-taking channel of monetary policy in the cross-border context

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 18

• 0.20
• 0.15
• 0.10
• 0.05

0.00 0.05 0.10 0.15 0.20 0.25 Sep-96 Jun-97 Mar-98 Dec-98 Sep-99 Jun-00 Mar-01 Dec-01 Sep-02 Jun-03 Mar-04 Dec-04 Sep-05 Jun-06 Mar-07 Dec-07 Sep-08 Jun-09 Mar-10 Dec-10 Sep-11

Banking Sector Capital Flows (year on year growth of external claims of BIS-reporting banks)

10 20 30 40 50 60 70

VIX Index (average over quarter) Banking sector capital flows VIX

Figure 14. This figure plots cross-border banking sector capital flows as year-on-year growth in external claims of BIS-reporting banks (Table 7A). The VIX series is the quarterly average of CBOE VIX index.

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 19

Model Sketch

Local borrower Foreign bank branch

A A L L

r  1

Parent bank

• r

wholesale funding market

Local currency US dollars US dollars US dollars

f  1

border

Figure 15. This figure depicts the lending relationships examined in the model. A foreign bank branch lends to local borrowers in dollars and finances its lending from the wholesale dollar funding market.

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 20

Credit Supply

Notation for balance sheet of bank

C

E f  1 r  1

L

Bank

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 21

Borrowers

 is debt with dollar face value , maturing at date . Value of the borrower’s project (in local currency) at date  is  = 0 exp ½µ  − 2 2 ¶  +  √  ¾  is a standard normal Borrower defaults when     is value of local currency against dollars

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 22

t

T

F

 

V

default probability Project value Effect of currency appreciation

Figure 16. Project value  and notional debt  for local borrowers. The borrower defaults when  falls short of the notional debt . The effect of a currency appreciation is to shift the outcome density upward, lowering the default probability.

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 23

Prob (  ) = Prob ⎛ ⎜ ⎝  − ln (0) + ³  − 2

2

´   √  ⎞ ⎟ ⎠ = Φ (−)  is the distance to default  = ln (0) + ³  − 2

2

´   √ 

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 24

Loan Portfolio of Banks

Each bank has a well diversified loan portfolio consisting of loans to many borrowers.  = √ + p 1 −  where  and {} are mutually independent standard normals. Then borrower  repays the loan when  ≥ 0, where  is the random variable:  =  +  =  + √ + p 1 −  = −Φ−1 () + √ + p 1 − 

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 25

Realized value of assets at date 1  ( ) ≡ (1 + )  · Pr ( ≥ 0| ) = (1 + )  · Pr ³√ + p 1 −  ≥ Φ−1 () | ´ = (1 + )  · Φ ³

 √−Φ−1() √1−

´

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 26 0.2 0.4 0.6 0.8 1 2 4 6 8 10 12 z density over realized assets 0.2 0.4 0.6 0.8 1 3 6 9 12 15 z density over realized assets ε = 0.2 ε = 0.3 ρ = 0.3 ε = 0.2 ε = 0.1 ρ = 0.01 ρ = 0.1 ρ = 0.3

Figure 17. The two charts plot the densities over realized assets when  (1 + ) = 1. The left hand charts plots the density over asset realizations of the bank when  = 01 and  is varied from 0.1 to 0.3. The right hand chart plots the asset realization density when  = 02 and  varies from 0.01 to 0.3.

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 27

c.d.f. of   () = Pr ( ≤ ) = Pr ¡  ≤ −1 () ¢ = Φ ¡ −1 () ¢ = Φ Ã

Φ−1()+√1−Φ−1

 (1+)

 √

!

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 28

Value-at-Risk (VaR) rule with insolvency probability to   0 when notional liability is (1 + ) . Pr (  (1 + ) ) = Φ Ã

Φ−1()+√1−Φ−1(1+)

(1+)

 √

! =  Notional liabilities Notional assets = (1 + )  (1 + )  = Φ µ√Φ−1 () − Φ−1 () √1 −  ¶ (1) where  (  ) ≡ Φ ³√Φ−1()−Φ−1()

√1−

´

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 29

Supply of Credit

Credit supply  and demand for funding  is obtained from (1) and balance sheet identity  =  +   =  1 − 1+

1+ · 

 = 

1+ 1+ · 1  − 1

Aggregation holds due to proportionality Leverage = 1 1 − 1+

1+ · 

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 30

Amplification Channel

• Suppose  is increasing in  (capital inflows exert upward pressure on

exchange rate)

• Fall in funding cost  has

— initial impact — amplification effect

• Lending depends on measured risks; and risks are dampened by lending

½  =  ¡ 2;  ¢ 2 = 2 () Both downward-sloping

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 31 2

 C a b

2



2 1



2 

  C

1

C



C

2

C 

 

C

2



 

f C  ;

2



 

f C ;

2



Effect of falling bank funding cost f

Figure 18. Impact of a decline in bank funding cost  consisting of the initial impact and the amplification effect.

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 32

   1 +   = − 1

1+ 1+ 1  −

³ 1 +  · 0

  

´   =   ·   ·   =  (∗)  ·   = −∗ 2 ·  ³

∗ 

´ ·    () is density of project outcomes ∗ is default threshold in domestic currency

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 33

Effect of Currency Intervention

Intervention can dampen amplification channel

2

 C a b c

Effect of currency intervention to slow appreciation

2 a



2 c



2 b

 C

b

C

c

C

Credit boom with intervention Credit boom without intervention

Figure 19. Effect of intervention to mitigate currency appreciation

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 34

Closed-Form Solution for Cross-Border Banking Exposures

Bruno and Shin (2011) Total cross- border lending = Global and weighted regional bank capital 1 − spread × regional leverage × global leverage Leverage is normalized to lie between zero and one. Spread is between lending rate to non-bank borrowers in recipient country and borrowing rate of global banks

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 35

Panel regression: dependent variable is growth of BIS-reporting banks’ lending in recipient country 1 2 3 4 5 6

∆Interoffice

0.0096*** 0.0097*** 0.0082*** [0.000] [0.000] [0.004] VIX

• 0.0579***
• 0.0670***
• 0.0417***
• 0.0383***

[0.000] [0.000] [0.000] [0.000]

∆VIX

• 0.0243***
• 0.0264***
• 0.0210***

[0.000] [0.000] [0.005] RER

• 0.0815***
• 0.0831***

[0.000] [0.000]

∆equity

0.0280*** 0.2638** 0.2981** [0.001] [0.025] [0.018]

∆equity*VIX

• 0.0967**
• 0.1096***

[0.013] [0.009]

∆M2

0.0239 0.0251 [0.232] [0.252] GDP growth 0.2766*** 0.3208*** [0.000] [0.000] Debt to GDP

• 0.0894***
• 0.0810**

[0.005] [0.013] RLR 0.005 [0.909] Constant 0.0242*** 0.2012*** 0.2287*** 0.0204*** 0.3136*** 0.3045*** [0.000] [0.000] [0.000] [0.000] [0.000] [0.000] Observations 3,185 3,185 3,185 2,744 2,468 2,228 R-squared 0.006 0.039 0.043 0.003 0.118 0.122 # countries 49 49 49 49 48 47

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 36

Panel regression: dependent variable is growth of BIS-reporting banks’ lending in recipient country 1 2 3 4 5 6

∆Interoffice

0.0096*** 0.0097*** 0.0082*** [0.000] [0.000] [0.004] VIX

• 0.0579***
• 0.0670***
• 0.0417***
• 0.0383***

[0.000] [0.000] [0.000] [0.000]

∆VIX

• 0.0243***
• 0.0264***
• 0.0210***

[0.000] [0.000] [0.005] RER

• 0.0815***
• 0.0831***

[0.000] [0.000]

∆equity

0.0280*** 0.2638** 0.2981** [0.001] [0.025] [0.018]

∆equity*VIX

• 0.0967**
• 0.1096***

[0.013] [0.009]

∆M2

0.0239 0.0251 [0.232] [0.252] GDP growth 0.2766*** 0.3208*** [0.000] [0.000] Debt to GDP

• 0.0894***
• 0.0810**

[0.005] [0.013] RLR 0.005 [0.909] Constant 0.0242*** 0.2012*** 0.2287*** 0.0204*** 0.3136*** 0.3045*** [0.000] [0.000] [0.000] [0.000] [0.000] [0.000] Observations 3,185 3,185 3,185 2,744 2,468 2,228 R-squared 0.006 0.039 0.043 0.003 0.118 0.122 # countries 49 49 49 49 48 47

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 37

Panel regression: dependent variable is growth of BIS-reporting banks’ lending in recipient country 1 2 3 4 5 6

∆Interoffice

0.0096*** 0.0097*** 0.0082*** [0.000] [0.000] [0.004] VIX

• 0.0579***
• 0.0670***
• 0.0417***
• 0.0383***

[0.000] [0.000] [0.000] [0.000]

∆VIX

• 0.0243***
• 0.0264***
• 0.0210***

[0.000] [0.000] [0.005] RER

• 0.0815***
• 0.0831***

[0.000] [0.000]

∆equity

0.0280*** 0.2638** 0.2981** [0.001] [0.025] [0.018]

∆equity*VIX

• 0.0967**
• 0.1096***

[0.013] [0.009]

∆M2

0.0239 0.0251 [0.232] [0.252] GDP growth 0.2766*** 0.3208*** [0.000] [0.000] Debt to GDP

• 0.0894***
• 0.0810**

[0.005] [0.013] RLR 0.005 [0.909] Constant 0.0242*** 0.2012*** 0.2287*** 0.0204*** 0.3136*** 0.3045*** [0.000] [0.000] [0.000] [0.000] [0.000] [0.000] Observations 3,185 3,185 3,185 2,744 2,468 2,228 R-squared 0.006 0.039 0.043 0.003 0.118 0.122 # countries 49 49 49 49 48 47

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 38 1 2 3 4 5 6

∆Interoffice

0.0104*** 0.0076*** 0.0074*** 0.0074*** 0.0075*** 0.0076*** [0.000] [0.002] [0.003] [0.003] [0.002] [0.002]

∆Interoffice*Korea

0.0107*** 0.0195*** [0.000] [0.000]

∆Interoffice*Korea*Post 2010

• 0.0314***

[0.000] VIX

• 0.0629***
• 0.0498***
• 0.0498***
• 0.0499***
• 0.0485***
• 0.0485***

[0.000] [0.000] [0.000] [0.000] [0.000] [0.000] VIX *Korea

• 0.0621***
• 0.0631***

[0.000] [0.000] VIX *Korea*Post 2010 0.0026* [0.071]

∆VIX

• 0.0214***
• 0.0211***
• 0.0212***
• 0.0211***
• 0.0212***
• 0.0212***

[0.001] [0.001] [0.001] [0.001] [0.001] [0.001] RER

• 0.0481***
• 0.0549***
• 0.0547***
• 0.0547***
• 0.0539***
• 0.0539***

[0.000] [0.000] [0.000] [0.000] [0.000] [0.000]

∆Money stock

0.7617*** 0.7618*** 0.7620*** 0.7628*** 0.7627*** [0.000] [0.000] [0.000] [0.000] [0.000] GDP Growth 0.3008*** 0.3002*** 0.3001*** 0.3013*** 0.3012*** [0.000] [0.000] [0.000] [0.000] [0.000] Debt to GDP

• 0.0806**
• 0.0805**
• 0.0806**
• 0.0813**
• 0.0814**

[0.015] [0.015] [0.015] [0.014] [0.014] Constant 0.2962*** 0.2729*** 0.2728*** 0.2731*** 0.2720*** 0.2720*** [0.000] [0.000] [0.000] [0.000] [0.000] [0.000] Observations 3,120 2,892 2,892 2,892 2,892 2,892 R-squared 0.057 0.146 0.146 0.146 0.147 0.147 Number of countries 48 48 48 48 48 48

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 39

Time Series Analysis

Four-variable vector autoregression (VAR)

• VIX index of implied volatility on equity index options
• Forward term premium between the 10 year and 3 month US treasury

rates (Gurkaynak, Sack, and Wright (2006))

• Feds Funds target rate
• Cross-border banking sector flows (BIS locational statistics, Table 7A)

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 40

Figure 20. Term premium beween 10 year and 3 month US Treasury rates (Source: Berk and DeMarzo (2010))

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 41

• 1.0

0.0 1.0 2.0 3.0 4.0 5.0

Jan-87 Aug-88 Mar-90 Oct-91 May-93 Dec-94 Jul-96 Feb-98 Sep-99 Apr-01 Nov-02 Jun-04 Jan-06 Aug-07 Mar-09 Oct-10

Percentage points

Figure 21. Twelve month forward term premium between 10 year and 3 month US Treasury rates. The series is computed following the methodology of Gurkaynak, Sack, and Wright (2006)

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 42

Structural VAR Cholesky ordering 1 2 3 4 Impact of (↓) On LOANS On Fed Funds On VIX On FTP LOANS

• .4
• .2

• .05

• .1

Fed Funds

• .01
• .005

• .02

• .2
• .1

VIX

• .015
• .01
• .005

• .6
• .4
• .2

• .2

FTP

• .005

• 1
• .5

• .04
• .02

Figure 22. Impulse response functions in Structual VAR. This figure presents estimated structural impulse-response functions for the four variable structual VAR (LOANS, FEFU, VIX, FTP) and 90 percent bootstrapped confidence intervals for the model with two lags, based on 1000 replications.

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 43

Structural VAR Cholesky ordering 1 2 3 4 Impact of (↓) On LOANS On Fed Funds On FTP On VIX LOANS

• .4
• .2

• .1

• .05

Fed Funds

• .01
• .005

• .2
• .1

• .02

FTP

• .01
• .005

• 1
• .5

• .05

VIX

• .015
• .01
• .005

• .2
• .1

• .1

Figure 23. Impulse response functions in Structual VAR. This figure presents estimated structural impulse-response functions for the four variable structual VAR (LOANS, FEFU, FTP, VIX) and 90 percent bootstrapped confidence intervals for the model with two lags, based on 1000 replications.

Bruno and Shin: Capital Flows and the Risk-Taking Channel of Monetary Policy 44

Tentative Conclusions

• US monetary policy has spillover effects through

— Activity of global banks — Interplay between risk-taking and measured risks — Global liquidity is a meaningful concept

• Domestic credit conditions depend on global liquidity conditions
• Need to broaden discussions about exchange rates and global rebalancing

in multilateral forums (e.g. G20) beyond current account and net capital flows — Importance of banking sector flows — September 2012 report of the Committee on International Economic Policy and Reform