Global Liquidity and Drivers of Cross-Border bank Flows discussion - - PowerPoint PPT Presentation

Discussion

Global Liquidity and Drivers of Cross-Border bank Flows

discussion by Anastasia Kartasheva (BIS)

The views expressed in the paper are those of the authors and do not necessarily represent the views of BIS.

Amsterdam, 13 June 2014

Discussion

Research questions

Global liquidity and cross-border …nancing conditions are

driven by supply factors

Where do global liquidity supply factors originate? Does supply depend on the …nancial and monetary policy

conditions of the source economies?

What characteristics a¤ect the recipient economy exposure to

variation of global liquidity?

These are important questions. But also di¢cult.

Discussion

Summary of the paper: Methodology

BIS IBS Locational data: exposure of a country to the rest of

the world

Distinguish between cross-border ‡ows to banks and

non-banks

banks are somewhat homogeneous non-banks category includes very diverse institutions: other

…nancials (insurance, hedge funds), corporates Liquidity supply factors in source economies

uncertainty and risk (VIX), funding conditions for global banks

(TED spread, US dealer bank and S4 bank leverage), money aggregates in S4, monetary policy in S4 (level and term structure of interest rates), …nancial regulation

Discussion

Summary of the paper: Key …ndings

Base regression results

cross-border bank ‡ows increase when uncertainty is lower,

leverage is higher, US interest rates are lower, yield curve is more ‡at

results are more pronounced for 2001-2012, consistent with

…nancial integration e¤ects The role of US vs other S4 drivers

non-US S4 factors are important regional e¤ects are important, but VIX e¤ects are important

beyond their regions Borrowers’ countries policies

some factors increase the growth in cross-border claims on

banks and non-banks: quality of institutions

but other factors decrease it: stricter bank capital regulation,

capital controls, ‡exible exchange rate regime

Discussion

How does it compare to other studies on global liquidity?

"First phase" of global liquidity research

empirical regularities between ease of funding/leverage

indicators and fund ‡ows "Second phase" of global liquidity research

possible mechanisms behind statistical regularities:

international transmission of monetary policy, VaR constraints, collateral requirements through the cycle "Third phase" of global liquidity research

assessment of the ine¢ciencies/vulnerabilities and design of

policy responses

Discussion

Comments

How do funds ‡ow? Interest rate di¤erential and currency composition Di¤erent types of fund ‡ows and their interaction recipient’s

regulation/institutions

Discussion

How funds ‡ow?

Role of …nancial centers Regional e¤ects: Too little of too much integration? What is the source economy?

US does not seem to be a source economy

The funds that come to the US from Euro area could have

• riginated in Japan

Funds ‡ow from country A to B. Does it depend on

conditions in country C?

Discussion

Interest rate di¤erential and currency composition

The currency composition of ‡ows varies across countries Interest rate re‡ects: credit risk, growth, currency risk Regional e¤ects

Discussion

Types of ‡ows and institutions/regulations

Sources of credit to non-banks

direct cross border credit: non-banks in a country can borrow

directly from non-resident banks (or issue bonds targeted at non-resident investors)

indirect cross border credit: resident banks borrow from non

residents, either banks or non-banks

foreign currency denominated credit: credit extended by banks

either inside or outside the country Country dependency on banking should matter Caveat: some of non-banks (other …nancials) can intermediate

the funds through the country

These sources of credit are substitutable How do regulations a¤ect the composition of ‡ows? Can

stricter supervision of banks help?

Discussion

Policy implications

Level of ‡ows: too high or too low? Volatility of ‡ows: too high or too low? Composition of ‡ows: how does it a¤ect the exposures to

capital out‡ows?

How should rules and regulations be designed to balance

di¤erent objectives?

Linkages in the international banking system

US dollar stocks linkages at Q1 20101 Euro stocks linkages at Q1 20101

CH Euro CH Euro Other Em Euro Other Em Euro UK UK Asia FC Asia-Pac Carib FC JP Lat Am Oil US US - Carib FC: US - UK: US - Euro: $3.7 tn $2.5 tn $1.3 tn Asia FC Asia-Pac Carib FC JP Lat Am US US Euro - UK: Euro - US: Euro - CH: $3.5 tn $0.3 tn $0.3 tn Oil

Cumulative net flows (Q1 2000–Q2 2007)² Cumulative net flows (Q3 2007–Q1 2010)²

Asia FC Asia-Pac Carib FC CH Em Euro Euro CH Euro Other Other Em Euro UK UK JP Lat Am US UK - US: JP - Euro: Carib FC - US: $600bn $260bn $245bn Oil Asia FC Asia-Pac Carib FC JP Lat Am US US - UK: US - Carib FC: UK - Euro: $709bn $438bn $437bn Oil

Asia FC = Asian financial centres (Hong Kong SAR, Macao and Singapore); Asia-Pac = China, Chinese Taipei, India, Indonesia, Korea, Malaysia, Pakistan, the Philippines and Thailand; Carib FC = Caribbean financial centres (Aruba, the Bahamas, Bermuda, the Cayman Islands, the Netherlands Antilles and Panama); CH = Switzerland; Em Euro = emerging Europe (Bulgaria, Croatia, Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, Slovakia, Slovenia, Turkey and Ukraine); Euro = euro area member states excluding Slovakia, Slovenia, Cyprus and Malta; JP = Japan; Lat Am = Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela; Oil = OPEC member states (excluding Indonesia) plus Russia; Other = Australia, Canada, Denmark, New Zealand, Norway and Sweden; UK = United Kingdom; US = United States.

1 The size of each circle is proportional to the stock of cross-border claims and liabilities of reporting banks located in the particular

geographical region. Some regions include non-reporting countries. The thickness of a line between regions A and B is proportional to the sum of claims of banks in A on all residents of B, liabilities of banks in A to non-banks in B, claims of banks in B on all residents of A and liabilities of banks in B to non-banks in A. ² Exchange rate adjusted flows, expressed at constant end-Q1 2010 exchange

• rates. The thickness of an arrow is proportional to the amount of net bank flows between regions, and is comparable across panels. An

arrow points from A to B if net flows in this direction are positive, calculated as changes in net interbank claims (assets minus liabilities)

• f banks in A on banks in B, plus net claims of banks in A on non-banks in B, minus net claims of banks in B on non-banks in A. (This

last component is missed if B is not a reporting country.) See “Tracking international bank flows”, BIS Quarterly Review, December 2006. Sources: BIS locational banking statistics by residence; authors’ calculations. Graph A BIS Quarterly Review, September 2010

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• International Financial Statistics