September 2016 BIS Quarterly Review: Markets pass Brexit test

18 September 2016

Markets recovered quickly from the shock of the Brexit vote. Central banks have exerted a calming influence and have eased further in recent months as dissonant markets raised questions about the outlook and the pricing of underlying risks.

"There has been a distinctly mixed feel to the recent rally - more stick than carrot, more push than pull, more frustration than joy. This explains the nagging question of whether market prices fully reflect the risks ahead," said Claudio Borio, Head of the Monetary and Economic Department. "Doubts about valuations seem to have taken hold in recent days. Only time will fully tell."

The September 2016 issue of the BIS Quarterly:

• Introduces four enhancements to published BIS data: expanded country-level details on cross-border banking flows; long-term series for credit-to-GDP gaps - an early warning signal of banking stress - and for commercial property prices; and historical consumer price data, dating as far back as 1661. In addition, the BIS is publishing daily data on nominal effective exchange rates for 61 countries. These new series will be available online and regularly updated.
• Shows that year-on-year growth of US dollar bank loans to borrowers outside the United States turned negative in the first quarter of 2016 for the first time since 2009, the time of the financial crisis.
• Explores the United Kingdom's role as a hub for international banking. Cross-border borrowing and lending by banks located in the United Kingdom, or UK branches of foreign banks, are notably larger-scale than the cross-border business of banks with headquarters in the United Kingdom.
• Documents the trend of non-financial companies issuing debt in euros rather than US dollars as they take advantage of lower borrowing costs and the ECB's asset purchases. Euro-denominated bonds are accounting for an increasing share of net issuance in international debt securities, including for US and emerging market borrowers.
• Discusses the strong growth of over-the-counter markets in derivatives trading, drawing on the recent BIS Triennial Survey of Foreign Exchange and Derivatives Markets Activity. 

Quarterly Review, September 2016

The United Kingdom as a hub for international banking

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