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Patterns in international banking: Key take-aways and implications (Verhaltensmuster im Internationalen Banking: Erkenntnisse und Implikationen); Swiss Bankers Association Journalistenseminar 2017 June 08, 2017; Zurich Ingo Fender, Bank for International Settlements (BIS)* *The views expressed here are those of the presenter and do not necessarily reflect those of the BIS. Restricted Starting point The BIS is known (among other things) for: Banking regulation BCBS as standard setter in the area of international banking Most recently: Basel III package of regulatory reforms International Banking Statistics (IBS) Key dataset covering international banking activity Aggregate information at the banking system level Plan: Use IBS to establish “patterns” in international banking; derive broad (prudential) implications on that basis Restricted 2 Outline 6 international banking patterns… : International banking is a USD business International banking centered on “hubs” Degree of international activity differs Bank structure differs too USD funding/hedging as a key issue New players/new targets (regionalisation) …and their (prudential) implications. Restricted 3 #1: International banking is a USD business Bank claims scaled by world GDP (%) Cross-border claims, by currency1 European banks (all currencies)2 20 6 15 4 10 2 5 0 00 02 USD EUR 04 06 JPY OTH 08 10 12 14 16 0 2002 2004 German banks British banks 2006 2008 2010 French banks Swiss banks 2012 2014 2016 Belgian banks Dutch banks 1 Banks in BIS locational reporting countries; including intragroup claims and claims of foreign affiliates on home countries. 2 Foreign claims excluding claims on residents of the home country booked by banks’ foreign offices. Sources: IMF; BIS consolidated statistics; BIS locational statistics by nationality; BIS calculations. Restricted 4 #2: …and is centered on “hubs” Geographic linkages in the international banking system USD stock linkages (residency perspective)1 CH EUR stock linkages (residency perspective)1 Euro Other CH Em Euro Euro Other Em Euro UK UK US JP Carib FC Carib FC Asia-Pac $3.8 tn $2.5 tn $1.3 tn JP Asia FC Lat Am US - Carib FC: US - UK: US - Euro: US Oil Asia FC Lat Am Euro - UK: Euro - US: Euro - CH: Asia-Pac $3.5 tn $0.3 tn $0.3 tn Oil 1 The size of each circle is proportional to the stock of cross-border claims and liabilities booked by reporting banks located in the particular geographical region. Some regions include non-reporting countries. . 2010-Q1 data; line thickness proportional to the sum of claims (all residents)/liabilities (non-banks) across nodes Restricted 5 #1/2: US dollar-based and hub-centred International banking is a USD business About half of cross-border activity US bank share is only about 25-30% Peak in 2008; tentative recovery Bond market activity is up over same period Shift to non-banks/”disintermediation” Cross-border banking is very concentrated UK and a few other major banking centers Foreign banks have large presence New York; London; Caymans; HK SAR/Singapore UK banks < 30% of UK total positions Restricted 6 #3: Degree of international activity differs… International banking business by nationality (2014/2016; ratios) Foreign claims / total claims, end-20161 Foreign claims / total claims, end-20141,2 0.5 0.5 0.4 0.4 0.3 0.3 0.2 0.2 0.1 0.1 0.0 SG CH GB SE BE FR ES CA DE US IT JP KR TR 0.0 SG CH GB SE BE FR ES CA DE US IT JP KR TR BE = Belgium; CA = Canada; CH = Switzerland; DE = Germany; ES = Spain; FR = France; GB = United Kingdom; IT = Italy; JP = Japan; KR = Korea; SE = Sweden; SG = Singapore; TR = Turkey; US = United States. 1 2 Consolidated claims of CBS reporting banks on an immediate counterparty basis. Foreign claims refer to claims on borrowers outside of banks’ home country. Total claims comprise foreign claims plus domestic claims.. Data for Singapore relate to end-March 2015. Sources: BIS Consolidated Banking Statistics; BIS Locational Banking Statistics; ECB; IMF IFS; national data. Restricted 7 #4: …and bank structure too Foreign assets and liabilities (2016; %), by booking location1 Foreign assets Foreign liabilities 100 100 80 80 60 60 40 40 20 20 0 JP DE US BE FR IT NL CH AU GB CA ES From home office From a third country 0 JP DE US BE FR IT NL CH AU GB CA ES Local Banks domiciled in: AU = Australia; BE = Belgium; CA = Canada; CH = Switzerland; DE = Germany; ES = Spain; FR = France; GB = United Kingdom; IT = Italy; JP = Japan; NL = Netherlands; US = United States. 1 Cross border, from home office = cross-border positions booked by the lending bank’s home office plus estimated cross-border funding of positive net positions vis-à-vis residents of the home country; Cross border, from a third country = cross-border positions booked outside the lending bank’s home country; Local = positions booked where the borrower resides. Sources: BIS consolidated banking statistics; BIS locational banking statistics by nationality. Restricted 8 #3/4: International activity and bank structure International activity: consolidated foreign claims/total claims Banks from SG, SE, CH and GB stand out as having internationally oriented balance sheets (~50% share) IT, JP and US banks are more domestically oriented (<25%) Banks with large domestic operations: may be less vulnerable to foreign shocks; but less diversified? Notable differences in bank structure: GE, JP: centralised pattern of international activities SP, CN: more locally managed and funded Different approaches/decision making: shock transmission? Restricted 9 #5: Currency hedging… Banks’ gross/net US dollar-denominated foreign positions German banks, by counterparty sector Japanese banks, by counterparty sector 200 2,500 1,000 2,500 100 1,250 500 1,250 0 0 0 0 –100 –1,250 –1,250 –200 –2,500 –2,500 –300 –3,750 00 Lhs: Net 02 04 06 08 10 12 Gross (rhs): 1 Monetary authorities 14 16 Non-banks –3,750 00 02 Gross (rhs): Interbank 04 06 08 10 12 14 16 Inter-office Amounts in USD bn; gross and net USD-denominated positions on German/Japanese banks’ balance sheets. The vertical lines indicate the 2007 beginning of the global financial crisis and the 2008 collapse of Lehman Brothers. Sources: BIS consolidated statistics; BIS locational statistics by nationality; BIS calculations Restricted 10 #6: …and new players (regionalisation)? Bank credit to emerging Asia-Pacific International claims on the region (USD bn)1 Share in international claims on the region (%) 1,600 40 1,200 30 800 20 400 10 0 2002 2004 2006 2008 2010 2012 2014 2016 Intraregional banks AU & JP banks US banks British banks 2 Swiss banks Euro area banks Other reporting banks 0 2002 2004 2006 2008 2010 Intraregional banks AU & JP banks US banks British banks 2012 2014 2016 Swiss banks Euro area banks Other reporting banks Sum of all cross-border claims and locally extended claims in foreign currency. 2 Intraregional share is the sum of international claims on the emerging Asia-Pacific region of banks headquartered in Chinese Taipei, Hong Kong SAR, India, Singapore and the offices of banks located in the region that have a parent institution from a non-BIS reporting country (assuming these are headquartered in Asia). 1 Source: BIS consolidated banking statistics (immediate borrower basis). Restricted 11 #5/6: Old issues and new players Long USD positions were big prior to the crisis GER (and CH, UK) banks funding LT claims on US non-banks (read: conduits) from non-USD/domestic sources Currency mismatch; typically hedged via FX swaps; translates into roll-over needs Net claims have come down substantially since; but not everywhere: USD funding markets remain key Intraregional share of banking activity is up Most obviously in Asia, but also elsewhere Integration of frontier markets Changing regional interlinkages: risk-sharing/concentration Restricted 12 (Prudential) Implications International nature of banking Underscores value of international standards and… …of consistent implementation (level playing fields) Differences across national banking systems No one-size-fits-all in supervision (& risk management) Premium on supervisory activity in key host jurisdictions… …and on supervisory cooperation Home-host issues taken to new country pairs Stress tests at the local (not only consolidated) entity level; different supervisory focus across countries USD funding as one focal point Restricted 13 -Thank you/Danke- Restricted