The Bank for International Settlements (BIS) released its 75th Annual Report, identifying several global economic trends over the past two decades as there are lower and less volatile inflation, accompanied by higher and less volatile output growth, growing external and internal imbalances, the latter leading to more frequent periods of financial stress often associated with rapid increases in credit, asset prices and fixed investment. Financial markets showed further evidence of overextension.
Banks and insurance companies in industrialised countries registered stronger performance during the year under review. Lower costs, the improved credit environment and healthy revenues from retail business contributed to higher profits. Structural improvements meant that better performance was also evident in jurisdictions that had experienced strains in the past. The search for yield continued to compress spreads in credit markets and risk-taking by investment banks persisted, helped by liquid funding conditions. The hedge fund sector experienced large inflows, while returns have declined.