Zambia hikes rate, ready to tighten again if CPI rises

    Zambia's central bank raised its key interest rate for the first time since November 2019 to contain rising inflation and anchor inflation expectations, and said it was "ready to adjust the policy rate upwards further should inflationary pressures persist."
    The Bank of Zambia (BOZ) raised its Monetary Policy Rate by 50 basis points to 8.50 percent, partly reversing last year's aggressive monetary easing cycle when the rate was cut twice (May and August) by a total of 350 points to a historic low of 8.0 percent in response to the COVID-19 pandemic.

     But since last year's rate cuts, Zambia became Africa's first sovereign pandemic-era default in November, the exchange rate of the kwacha has continued to weaken despite BOZ's scaled-up interventions, and inflation has accelerated sharply in the last three months.

     In January Zambia's inflation rate hit 21.5 percent, up from 19.2 percent in December, the highest since April 2016, and BOZ said it expected inflation to deviate away from the upper bound of its target range of 6.0-8.0 percent due to the lagged pass-though from the kwacha's deprecation and sustained high fiscal deficits.

    "This risks to the inflation outlook are assessed to be tilted to the upside," the bank said, adding inflation was bound to rise even further if the rise in crude oil prices persists, fiscal deficits turn out to be higher than projected and the exchange rate depreciates further.

    The kwacha fell sharply in March last year in response to the outbreak of the pandemic but only bounced back marginally from April until August when pressure on the currency returned.

     Today the kwacha was trading at 21.65 to the U.S. dollar, down 2.3 percent this year and down 35 percent since the start of 2020.

     "Rising excess demand continued to characterize the foreign exchange market due to higher import requirements for petroleum products and agricultural inputs under FISP (Farmer Input Support Programme)," BOZ said, adding it had sold US$339.8 million in the fourth quarter of last year, up from US$148.5 million in the third quarter.

      Due to foreign exchange intervention and debt service, Zambia's gross international reserves declined by $117.7 million to $1.2 billion at the end of December from end-September, enough for 2.4 months of import cover. 

      The economy of Zambia, Africa's second largest copper miner, shrank less than expected in the second half of 2020 as COVID-19 restrictions were partly relaxed, and this year BOZ expects gross domestic product to recovery, helped by growth in mining, electricity, gas and water, along with information and communication services.

     However, BOZ said aggregate demand still remains subdued and growth will be weak given uncertainty surrounding the resurgence of COVID-19 infections and the narrow fiscal space.

     In the third quarter of 2020 Zambia's GDP shrank an annual 2.6 percent, up from a 2.1 percent fall in the second quarter.

     www.CentralBankNews.info

Crushing the States, Saving the Banks: The Fed’s Generous New Rules - guest column

    Following article was written by Ellen Brown, an attorney and founder of the Public Banking Institute. She is the author of twelve books, including the best-selling Web of Debt, and her latest book, The Public Bank Solution, which explores successful public banking models historically and globally.

    Central Bank News will occasionally carry articles by guest contributors if they are of interest to our readers.

By Ellen Brown

Congress seems to be at war with the states. Only $150 billion of its nearly $3 trillion coronavirus relief package – a mere 5% – has been allocated to the 50 states; and they are not allowed to use it where they need it most, to plug the holes in their budgets caused by the mandatory shutdown. On April 22, Senate Majority Leader Mitch McConnell said he was opposed to additional federal aid to the states, and that his preference was to allow states to go bankrupt. 

No such threat looms over the banks, which have made out extremely well in this crisis. The Federal Reserve has dropped interest rates to 0.25%, eliminated reserve requirements, and relaxed capital requirements. Banks can now borrow effectively for free, without restrictions on the money’s use. Following the playbook of the 2008-09 bailout, they can make the funds available to their Wall Street cronies to buy up distressed Main Street assets at fire sale prices, while continuing to lend to credit cardholders at 21%.  

Fin. cycle better than yield curve predicting downturn-BIS

     Since the mid-1980s economic downturns have typically been preceded by financial booms rather than marked monetary tightening to quell inflation and the state of the financial cycle rather than a flatter yield curve has done a better job in signaling recession risks, according to the Bank for International Settlements (BIS).
     In the latest quarterly review of international banking and financial markets, BIS economists find that the nature of recessions has changed since 1985 when compared with the period from 1970 to 1984, with inflation now lower, short-term interest rates only rising modestly and the term spread narrowing far less than before.
     In contrast, expansions of the financial cycle has been very much in evidence ahead of recessions in the last 30 plus years, leading the authors to conclude there has been a shift from inflation-induced recessions to financial cycle-induced recessions.
     Since the mid-1980s the global economy has changed dramatically. Financial markets have been liberalized, central banks have been squarely focused on curbing inflation and the entry of China and former Communist countries into the global economy has boosted supply and competitive pressures.
     Following the Global Financial Crises, BIS put a spotlight on the nature of the financial cycle, which moves in 15-20 year spans rather than the business cycle that can last up to 8 years.
      The article, "The financial cycle and recession risk" is authored by Claudio Borio, head of BIS' Monetary and Economic Department, and Mathias Drehmann and Dora Xia of BIS.
      Click here to read the BIS Quarterly Review.
   
    www.CentralBankNews.info

Global banking activity weak in Q4 but up in 2016 - BIS

     Global banking activity weakened in the fourth quarter of 2016 as lending fell to advanced economies, especially the United Kingdom, but strong growth in the first half of the year and major debt offerings by Saudi Arabia and Qatar helped boost total cross-border lending in 2016 by $504 billion, or 1.9 percent, according to the Bank for International Settlements (BIS).
      Credit extended by major global banks declined by a total of $281 billion in the fourth quarter of last year for the second consecutive quarterly decline, primarily due to a $120 billion contraction in lending to non-bank financial institutions, such as hedge funds, insurance companies and pension funds, BIS said in its latest quarterly review of international banking and financial markets.
      A $287 billion fall in lending to borrowers in advanced economies largely reflected a $143 billion fall in credit to the U.K., with loans to banks shrinking by $72 billion and those to non-banks by $24 billion.
      Cross-border lending to the U.S. also fell in the fourth quarter, down by $82 billion, along with lending to several euro area countries while credit to Japanese borrowers grew by $60 billion.
      After stalling in the third quarter of last year, cross-border lending to China rose by a moderate $16 billion in the fourth quarter, bringing the outstanding stock of claims to $755 billion.
      In contrast, cross-border lending to emerging Asia, excluding China, shrank by $9 billion, with a $7 billion fall in lending to Korea and a $3 billion fall in claims on Indonesia while lending to Taiwan grew by $4 billion.
      Despite the fall crude oil prices in recent years, international lending to oil-producers in the Middle East rose on the back of two of the three largest debt offerings in the history of emerging market sovereign debt.
     In October 2016 Saudi Arabia issued $17.5 billion in debt while Qatar raised $9 billion in May 2016. Saudi Arabia, along with several other countries, this week cut diplomatic ties with Qatar, accusing it of supporting terrorism in the Gulf region.
      BIS said its database suggested that general government net issuance last year reached $30.6 billion for Saudi Arabia, $10 billion for the United Arab Emirates and $9 billion for Qatar despite the pressure on the fiscal position of many oil exporters from the fall in oil prices from more than $100 a barrel in 2014 to almost $30 at the start of 2016.
     By end-2016 prices had recovered to $54 a barrel but are currently trading below $50.
     U.K. banks are the most important single group of lenders to oil exporters, accounting for $67 billion, or 23 percent of total outstanding international claims, while euro area lenders accounted for 22 percent, followed by U.S. banks with 16 percent and Japanese banks with 14 percent.
     However, banks from Asian emerging markets are now also playing an increasingly important role in international banking activity, said BIS, which monitors global banking flows.
     Low oil prices also affected capital flows from the Middle East into the international banking system with cross-border deposits from residents in those countries down by $11 billion in 2016, taking the stock to $499 billion, with deposits denominated in U.S. dollars in particular dropping, BIS said.
     But outstanding stock of deposits in U.S. dollars still account for more than two-thirds of the total, with more than half of the deposits placed in banks in advanced economies, such as $156 billion in the U.K., $48 billion in the U.S. and $26 billion in Switzerland.

    Click to read the full quarterly review by the BIS.

    www.CentralBankNews.info

 

Politics reassert supremacy over financial markets - BIS

     Politics reasserted their supremacy over financial markets in recent months as investors began to discriminate across asset classes, regions and sectors in contrast to the heard behavior in recent years that was characterized by consistent waves of risk-on and risk-off buying and selling, according to the Bank for International Settlements (BIS).
     This break with the past was another sign that financial markets' close dependence of central banks' utterances and actions has been weakened, at least temporarily, according to Claudio Borio, head of BIS' Monetary and Economic Department.
    In its March 2017 Quarterly Review, BIS also found that U.S. dollar credit to non-bank borrowers outside the United States grew by $420 billion between the end of the first quarter and the end of the third quarter of 2016, with the total outstanding amount end-September now at $10.5 trillion when new data from banks in China and Russia are included.

    Click to read the BIS Quarterly Review, March 2017

    Following are remarks by Borio and Hyun Song Shin, economic adviser and head of research at BIS, known as the central banks' bank, in connection with the release of the review:

Emerging markets may be facing tighter liquidity - BIS

    Emerging market economies may be facing tighter liquidity conditions as cross-border lending to emerging economies, especially China, shrank in the third quarter of 2015 and U.S. dollar borrowing by non-bank companies in those economies was flat for the first time since 2009, according to the Bank for International Settlements (BIS).

    BIS General Manager Jaime Caruana said global liquidity - a term that captures the ease of financing in global financial markets -  shows that the stock of U.S. dollar-denominated debt of non-bank borrowers outside the U.S. was unchanged at $9.8 trillion from June to September and dollar borrowing by non-banks in emerging economies also was steady at $3.3 trillion.

    An even clearer sign that global liquidity conditions for emerging markets may have peaked comes from a decline in cross-border lending to China, Brazil, India, Russia and South Africa. In the third quarter of last year lending shrank by $38 billion to $824 billion from the second quarter, Caruana said in a speech at the London School of Economics (LSE).

    The shift in global financing conditions comes as growth in emerging market economies is declining, the U.S. dollar is rising against emerging market currencies, and commodity prices, especially oil, has plunged, hitting commodity producers.

    While these three headwinds may appear unconnected at first sight, Caruana said they are deeply connected and share common factors.

    "Rather than being exogenous "shocks," they are manifestations of a major realignment of economic and financial forces associated with the long-anticipated shift of global monetary forces," he said.

    Although total global debt has continued to rise since the global financial crises, the growth in emerging markets has been dramatic as compared to that of advanced economies, Caruana said.

    Since 2009 the average level of private credit in emerging economies as a proportion of Gross Domestic Product has jumped to 125 percent from around 75 percent and the debt of non-financial emerging market firms as a proportion of GDP has grown so fast that it exceeds that of advanced economies.

    Companies that produce commodities as well as non-tradable goods were attracted to a relatively weak U.S. dollar and low interest rates since 2009 and as a rule of thumb, 1 percent depreciation of the dollar has been associated with a 0.6 percentage point increase in the quarterly growth of dollar-denominated cross-border lending outside the U.S. 

    The increased leverage facing companies in emerging markets would be less of a concern if the debt had been used to finance productive investments that eventually boost profits.

    "However, the profitability of EME non-financial companies has fallen," Caruana said, noting that traditionally they had been more profitable than their peers in advanced economies but their profitability has been falling in recent years and is now below that of advanced economies.

    Although many firms in emerging markets have dollar cash flows to help service debt and much of the debt has maturities of over 10 years, Caruana said the challenges of deleveraging and a depreciation of the local currency should not be underestimated.

    "The feedback loop has started to impact the broader economy in EMEs now that the dollar has started to appreciated, " he said.

    And while many emerging markets economies now have large foreign exchange reserves in contrast to the crises in the 1980s and 1990s, Caruana said this may not necessarily prevent slower growth as there is no real mechanism for transferring foreign exchange reserves to private firms with dollar debts, which end up curtailing their operations as they reduce leverage.

    The impact of the fall in commodity prices has not only hit oil producers in emerging economies but also U.S. shale producers, with both types of firms borrowing heavily from both banks and markets against oil reserves and projected revenue.

    The value of outstanding bonds from oil and gas companies rocketed to $1.4 trillion in 2014 from $455 billion in 2006 and syndicated loans amounted to $1.6 trillion in 2014, up from $600 billion in 2006.

    A large part of the borrowing was from state-owned oil companies in emerging markets whose firms paid large dividends to their governments, helping finance spending.

    "As with any leveraged sector, the combination of falling oil prices and higher leverage can lead to financial strains for oil-related firms," Caruana said.

    Click to read Caruana's speech "Credit, commodities and currencies."

    www.CentralBankNews.info

    

Global lending dips in Q4 as China and Russia hit - BIS

    Global cross-border lending dropped by $5 billion in the fourth quarter of 2014 as claims on borrowers in emerging markets, especially China and Russia, plunged by $80 billion while lending to advanced economies, such as the United Kingdom and the euro area, continued to recover, according to the Bank for International Settlements (BIS).
    Lending by major international banks to China contracted by $51 billion by the end of December 2014 from the end of September, but outstanding claims on Chinese residents totaled $1 trillion, far exceeding those of other emerging market borrowers such as Brazil, with total claims of $308 billion, India of $196 billion and Turkey of $194 billion.
    The surge in lending to China over the past few years has been driven primarily by short-term leading to banks - much of it in U.S. dollars - but authorities are now attempting to carry out a delicate balancing act of tightening credit conditions without disrupting economic growth.
    The contraction in lending to China in the fourth quarter of last year comes after an increase of almost 40 percent between the end of September 2013 and September 2014. But from the second to the third quarter of 2014 claims rose only by 3 percent.
    With the U.S. Federal Reserve likely to raise rates in coming months, there is concern that borrowers in emerging markets will face strains from higher debt repayments of loans in U.S dollars.
     Although the dollar share of cross-border lending has declined for China to 39 percent at the end of 2014 from 54 percent at the end of 2008, it remains very high for other countries. At the end of 2014, dollar-denominated loans amounted to 78 percent of cross-border claims to Brazil, 74 percent of claims on India, 68 percent for Indonesia and 70 percent for Taiwan.
    International lending to advanced economies continues to expand as their banking systems recover after the global financial crises, with claims on advanced economies up by $27 billion in the fourth quarter from the third quarter, helped by a 5 percent year-on-year rise in loans to the euro area and the U.K. and steady lending to the U.S.
    Within the euro area, there are marked differences as loans to France rose by 12 percent annually, claims on Germany rose 8 percent and claims to Italy were up by 6 percent. Meanwhile, claims on Cyprus fell 8 percent, while annual claims on Portugal and Spain fell 4 percent and loans to Greece contracted by 3 percent.
    Cross-border claims on Japan also continued to expand at a very rapid pace, growing at annual rate of 16 percent as of the end of 2014, with most of the growth in lending directed towards banks. The share of international claims on Japanese banks rose to 75 percent by the end of last year from 53 percent at the end of 2007.

    Click to read the BIS international banking statistics at end-December 2014.
   
    www.CentralBankNews.info

Debt-fueled economic growth not sustainable - BIS

    The reliance of debt as an engine of global economic growth is not sustainable and boosting demand through further debt will only lead to financial fragility and increasingly disruptive financial cycles, according to the Bank for International Settlements (BIS).
    In his speech to the annual meeting of the BIS, General Manager Jaime Caruana called on policy makers to take advantage of the current economic upswing to transition the global economy into a less debt-driven and thus more sustainable model, to move toward more normal monetary policy and a more reliable financial system.
    Speaking to central bank governors gathered at BIS’ headquarters in Basel, Switzerland, Caruana said the 2007-2009 financial crises still casts a long shadow on the world economy although the healing has begun as reforms take hold, growth broadens in advanced economies, the euro area emerges  from recession and the slowdown eases emerging market economies.
    But the economic upswing is weak by historical standards as consumers, firms and banks continue to pay down debt and countries struggle to shift resources into productive sectors after the misallocation during the financial boom.

BIS warns of weakness in emerging markets' banks

    Banks from countries that are still enjoying financial booms may be weaker than they appear as reliable warning indicators are flashing red, said the Bank for International Settlements (BIS).
    BIS, known as the central banks' bank, said it was mainly concerned about financial institutions that are exposed to emerging markets, such as China, where economic growth is being fueled by unstable leverage based on a benign credit outlook and a potential for strong earnings.
    But BIS’ concern is not limited to emerging markets but extends to banks in some advanced economies, such as Switzerland and the Nordic countries where high market valuations “may be reflecting fast credit growth and frothy property prices,” BIS said in its latest annual report.
    Although several indicators, including non-performing-loan ratios (NPL), are signaling an upbeat message about banks in emerging Asia and Latin America, BIS cautioned that “such indicators failed to signal vulnerabilities in the past.”
    Because of their backward-looking nature, NPL ratios did not rise in advanced economies until 2008 when the financial crises was already under way, just as credit ratings and market valuations failed to warn of the imminent financial distress.

BIS: Central banks risk exiting ultra-easy policy too late

    Major central banks face unprecedented challenges in returning to normal monetary policy after years of extraordinary measures, suggesting that the predominant risk is that they exit too late or too slowly, according to the Bank for International Settlements (BIS).
    There is little doubt that central banks helped contain the fallout from the 2007-2009 financial crises, but it is just as clear that the recovery from the recession has been unusually sluggish despite seven years of rock-bottom interest rates.
    “This suggests that monetary policy has been relatively ineffective in boosting a recovery from a balance sheet recession,” BIS said in its annual report.
     One reason for the limited effectiveness of monetary policy is that once central banks, such as the U.S. Federal Reserve in December 2008 and the Bank of England in March 2009, have slashed rates to essentially zero, they can’t go lower.
    But more importantly, the reason for the relative ineffectiveness of monetary policy is that the recession was not a typical postwar recession but rather a balance sheet recession that was associated with the bust of an outsize financial cycle.
    “Balance sheet recessions are less responsive than normal recessions to policies that boost direct demand,” Claudio Borio, who took over as head of BIS' Monetary and Economic Department last November, told journalists in a telephone conference.

Global bank lending shrinks for 7th quarter in a row - BIS

    Global bank lending shrank for the seventh consecutive quarter in the final three months of 2013 as euro-denominated credit continued to fall, boosting the total decline in international credit to $2.3 trillion, or 7.7 percent, since the end of March 2012, according to the Bank for International Settlements (BIS).
    But while total cross-border lending fell by $93 billion, Swiss-based BIS said the 0.3 percent contraction from end-September to end-December was considerably smaller than in the previous two quarters when the decline averaged $519 billion, or 1.8 percent.
    The worldwide lending pattern in the fourth quarter showed a further decline in euro-denominated while loans extended in U.S. dollars and yen rose, said BIS, known as the central banks' bank.
    Euro lending fell by $325 billion, or 3.3 percent, while dollar-lending grew by $49 billion, or 0.4 percent, and yen-lending rose by $62 billion, or 5.3 percent.
    The sharp fall in euro-denominated lending is part of the broader global trend that has been seen since the global financial crises.
    The outstanding stock of euro-denominated claims, including intra-euro lending, has shrunk by $1.8 trillion, or 21 percent, since peaking at $8.8 trillion at the end of 2008. This fall accounts for nearly two-thirds of the overall fall in the stock of global cross-border in the same period.

Global credit contracts in Q3 as interbank lending falls-BIS

    Global credit continued to contract in the third quarter of 2013, driven by a sharp drop in lending between banks, especially in Europe, that is similar to the magnitude and length seen during the global financial crises, according to the Bank for International Settlements (BIS).

    BIS, which tracks cross-border banking activity and is known as the central banks' bank, said global lending fell by $508 billion, to $28.5 trillion, with credit between banks down by $471 billion, or 2.8 percent, from the end of June to the end of September.

    Lending between banks has been on the decline since 2011 and interbank positions fell by a total of $2.9 trillion, or 15 percent, between the end of September 2011 and September 2013.

    This is comparable to a total fall of $3.1 trillion, or 14 percent, between end March 2008 and end-December 2009, said BIS based on preliminary data for the third quarter of 2013.

    “The slowdown in cross-border lending in Q3 2013 coincided with a period of volatility in global financial markets,” said BIS, referring to the tightening in global financial conditions following the U.S. Federal Reserve’s statement in May that it was considering phasing out quantitative easing.

Cap on debt-to-income can control home prices - BIS

    Most countries that experienced an explosion in house prices ahead of the global financial crises have taken a variety of policy measures to avoid another real estate boom with evidence that a limit of the debt-service-to-income ratio is the best tool to slow housing credit growth, according to the Bank for International Settlements (BIS).
    But to slow down the actual growth of real estate prices, a BIS working paper found that higher housing- related taxes was the only tool that had any measurable impact.
    Measures specifically targeted at dampening a rise in real estate prices are now used by authorities worldwide as it has become clear that an increase in central bank interest rates that is large enough to dampen the rise in house prices would run the risk of triggering an overall recession.
    The working paper by Kenneth Kuttner, professor of economics at Williams College, and Ilhyock Shim, senior economist at BIS' Hong Kong office, systematically examines the efficacy of nine different measures taken by 60 countries since 1980 to control housing credit and house prices.
    Click to read: "Can non-interest rate policies stabilize housing markets? Evidence from a panel of 57 economies."

    www.CentralBankNews.info

Global shadow banking grows by $5 trillion in 2012 - FSB

    Shadow banking assets grew by an estimated $5 trillion in 2012 to a total of $71 trillion, mainly due to the general rise in financial markets, according to the Financial Stability Board (FSB).
    In its third annual survey of the world of shadow banking, which has been expanded to include hedge funds along with insurance companies, pension funds and public financial institutions, the FSB said the rise last year measured on a broad basis amounted to 8.1 percent, up from an 0.6 percent rise in 2011.
    In general, shadow banking - or non-bank financial intermediaries - forms a large proportion of financial systems in advanced economies and was largely stable last year but the FSB said shadow banking had grown strongly in emerging markets, up by over 20 percent, though from a small base.
    In China, for example, shadow banking assets grew by 42 percent in 2012 while in Spain they shrunk by 11 percent, the FSB said.
    The rise in shadow banking assets last year is in contrast with the banking system where assets were relatively stable as the effect of higher asset values was counterbalanced by shrinking balance sheets.
    Globally, the assets of the shadow banking system represents an average of some 24 precent of total financial assets, about half of banking system assets and 117 percent of the Gross Domestic Product of the 25 jurisdictions and the euro area as a whole that were monitored by the FSB.

Notional OTC derivatives amount hits $693 trillion - BIS

    The notional amount of outstanding derivatives contracts jumped to $693 trillion by the end of June from $633 trillion at the end of 2012, but part of the rise was due to increased trading through central counterparties (CCPs), the Bank for International Settlements (BIS) said.
    When over-the-counter (OTC) derivatives trades are cleared through CCPs, the notional amounts reported to the BIS increases because one contract becomes two, said the BIS based on its semiannual survey of some 70 major derivatives dealers based in 13 countries.
    In contrast to the rise in notional amounts, the gross market value of the OTC derivatives, or the cost of replacing all contracts at market prices, fell to $20 trillion end-June from $25 trillion end-2012.
    Interest rate contracts are still the largest segment in the global OTC derivatives market, with notional amounts of $577 trillion.
    But the use of derivatives varies depending on dealers, the BIS said.
    Dealers in emerging markets tend to focus on managing foreign exchange risks with interest rate derivatives accounting for a much smaller share of their contracts compared with those dealers that are based in the largest markets and participate in the semi-annual survey.

Bank regulators propose new securitisation framework

    Global banking regulators have proposed a new framework for banks to calculate potential losses on asset-back securities that aims to reduce their automatic reliance on credit ratings agencies whose  assumptions proved far too optimistic and contributed to the severity of the global financial crises.
    The Basel Committee on Banking Supervision said the proposal - "Revisions to the Basel Securitisation Framework - did not include a specific text but was a revision to the framework. The Committee is now asking for industry feedback and will carry out an impact study of the proposals before deciding on the "definite way forward."
    The popularity of securitised debt, such as mortgage-backed securities, exploded in the last decade but the financial crises revealed that banks and ratings agencies severely underestimated the expected loss in underlying exposures and the concentration of systemic risk. They were also far too optimistic in their view of the benefits to banks of such diversification.
    As the crises started to unfold in 2007, it became clear that capital requirements assigned to both highly-rated and low-rated securitised products were too low. So when ratings agencies downgraded the products as credit quality deteriorated, banks suddenly had to come up with additional regulatory capital and often sought to get rid of their securitisation exposure, further depressing their value.

Value of outstanding OTC derivatives falls 1% - BIS

    The total notional amount of outstanding Over-The-Counter derivatives declined 1.0 percent to $639 trillion at the end of June from the end of 2011, mainly because a rise in the value of the U.S. dollar reduced the value of euro-denominated contracts, the Bank for International Settlements (BIS) said.

    The overall decline was driven by a 2.0 percent drop in interest rate contracts, BIS said, adding that the notional amounts of credit derivatives fell by 6.0 percent.

     In contrast, BIS said the value of outstanding foreign exchange contracts rose by 5.0 percent to $67 trillion.

    Gross credit exposures, which measure the exposure of dealers reporting to the BIS, fell to $3.7 trillion after taking into account netting agreements. Gross market values, which measure the cost of replacing existing contracts, fell by 7 percent to $25 trillion.

     A detailed analysis of the recent trends in the OTC derivatives markets, which will soon be traded on exchanges, will be published in the next BIS Quarterly Review on Dec. 10.

    

    www.CentralBankNews.info

     

Task force issues 7 disclosure principles for banks

    A task force comprised of bankers, investors, analysts, auditors and credit ratings’ officers has issued seven principles that should make it easier for shareholders to grasp the risks posed by banks and help restore their trust in the financial industry.

    The principles from the Enhanced Disclosure Task Force (EDTF), which was formed in May at the initiative of the Financial Stability Board (FSB), is different from recommendations by banking regulators because they arise from discussions between users and prepares of financial reports.

    “These principles provide a firm foundation for developing high-quality, transparent disclosures that clearly communicate banks’ business models and the key risks that arise from them,” said the report, co-chaired by Hugo Baenziger, supervisory board chairman of Eurex, Russell Picot, group general manager of HSBC, and Christian Stracke, managing director of Pimco.

    The principles are mainly aimed at improving risk disclosure by large international banks, but should also be applicable to all banks that access equity and debt markets.