December 2015 BIS Quarterly Review: Uneasy calm awaiting lift-off

06 December 2015

The December issue of the BIS Quarterly Review explores how global financial markets have responded in recent months to the prospect that monetary policy paths will diverge across the major advanced economies.

Bank for International Settlements review highlights:

• Markets stabilised in October, following the episode of turbulence that took place in August.
• In November, strong macroeconomic data from the United States increased the likelihood of a "lift-off" in the Federal Reserve's policy rate. The prospects for higher US rates posed challenges for a number of emerging market economies (EMEs), including currency weakness, higher bond yields, and possible capital outflows.
• Data from earlier in the year point to a slowdown in international financial flows. Cross-border banking contracted in the second quarter, for the first time since mid-2013. International debt securities issuance slowed in the third quarter, particularly for EMEs.
• Currency movements may have affected banking flows, as the weakening of the euro coincided with increased euro-denominated borrowing outside the euro area.

Four special features address statistical, policy and regulatory issues:

• A BIS-compiled data series gives a more detailed picture of how US dollar credit is distributed outside the United States, shedding light on dollar borrowing patterns in different EMEs, as Robert McCauley, Patrick McGuire and Vladyslav Sushko (BIS) report.
• Ingo Fender and Ulf Lewrick (BIS) find considerable scope for increasing the Basel III minimum leverage ratio requirement without compromising the net macroeconomic benefits.
• Dietrich Domanski, Leonardo Gambacorta and Cristina Picillo (BIS) argue that, while progress has been made in improving the resilience of central counterparties, the interaction of central clearing with the rest of the financial system remains imperfectly understood.
• Marlene Amstad (Chinese University of Hong Kong, Shenzhen) and Frank Packer (BIS) show how sovereign credit ratings have evolved post-crisis, analyse the factors driving such ratings and ask whether there is evidence of a bias against EME borrowers.

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