Saturday, August 18, 2018

BIS Newsletter - Implications of Low Interest Rates

The Bank for International Settlements publishes a newsletter featuring a variety of articles and studies available from them. The latest newsletter from BIS is pasted in below and features a study on the implications of long term low interest rates. BIS continues to say that there is the potential for long term low interest rates to "affect financial stability".


August 2018

Implications of low interest rates 

Prolonged low market interest rates could affect financial stability, the Committee on the Global Financial System finds.

First G-SIB methodology review finalised

The Basel Committee’s framework for identifying the systemic importance of global banks is working as intended.

Principles for financial market infrastructures

Jurisdictions are making progress towards implementing international standards for payment, clearing and settlement systems.

Bond issuance continues to fuel global liquidity

Dollar credit to non-bank borrowers outside the US rose to $11.5 trillion in Q1, driven by international bonds.

US dollar and euro credit to non-residents continued to expand 

Innovative technology in financial supervision (suptech)

Financial sector supervisors are getting tech-savvy. This FSI Insights paper explores early experiences in using innovative technologies for supervision work.
More BIS publications 

BIS Working Paper: Gauging procyclicality and financial vulnerability in Asia through the BIS banking and financial statistics
Can BIS data help to gauge financial vulnerability? BIS statistics sent warning signals ahead of the 1997 Asian financial crisis. 

BIS Paper: Low for long or turning point?
Papers from the 16th BIS Annual Conference feature research and discussions by central bank Governors, leading academics and former public officials.

BCBS Working Paper: Survey on the interaction of regulatory instruments: results and analysis
The Basel Committee publishes further results and analysis of a survey on how multiple regulatory instruments interact.
My added comments: One article above notes that non bank borrowing of US dollar denominated debt by foreign countries continued to climb higher up to $11. 5 trillion. The article also states:

"The US dollar accounted for by far the largest share of outstanding foreign currency credit to non-bank borrowers in EMEs, at $3.7 trillion at end-March 2018, followed by the euro (€644 billion, or about $790 billion) and the yen (¥8 trillion, or $70 billion)." (see detailed report here)

Two points to keep in mind:

1- as the US dollar index goes higher, paying off this debt in US dollars becomes harder for the borrowers and the risk of default rises

2- Please note that as of this report (March 2018) borrowing in US dollars is still far ahead of any other currency. They don't even mention the yuan in this paragraph

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