BIS Quarterly Review analyses lending patterns, long-term growth prospects
- New research on syndicated lending by non-banks and the growing role of global banks' foreign branches highlights channels that may transmit stress across borders
- Special feature suggests that, on pre-pandemic labour productivity trends, global economic growth could be slower in the years ahead than in the 2010s
- The Quarterly also reviews financial market developments in the three-month period1 before the recent eruption of geopolitical conflict
The March 2022 BIS Quarterly Review showcases research that highlights the key issue of the funding sources of financial intermediaries and how this affects the volatility of lending by both banks and non-banks. It also contains a special feature examining possible paths for post-pandemic growth.
Non-banks play an important role in syndicated lending to non-financial firms, as authors Iñaki Aldasoro, Sebastian Doerr (BIS) and Haonan Zhou (Princeton) show in their special feature. They find that lending by non-banks is more concentrated, fluctuates more with risk conditions and – being riskier – attracts higher spreads than lending by banks. One aspect of this volatility is that non-banks curtail lending to foreign borrowers more than banks do at times of domestic financial stress, thereby magnifying the transmission of shocks across countries.
Another special feature examines a new data set on global banks' foreign branches and subsidiaries and their distinct balance sheet structures. Authors Iñaki Aldasoro, John Caparusso (BIS) and Yingyuan Chen (IMF) show that branches, which tend to be heavily involved in international corporate banking, have grown relative to locally focused subsidiaries. Branches have business models that can be riskier for host countries due to their reliance on wholesale funding, and authorities, particularly in advanced economies, have tightened constraints on them, especially after the Great Financial Crisis.
The research presented today in the Quarterly Review underscores the importance of staying on top of the key channels of shock propagation in the global financial system.
BIS staff also turned their attention to the prospects for global economic growth. The special feature by Gabriela Nodari, Daniel Rees and Phurichai Rungcharoenkitkul (BIS) examines the historical sources of global growth and provides a framework that can be used for thinking about the sources of future growth. Their analysis suggests that a continuation of pre-pandemic labour productivity trends would slow growth. Structural policy measures would be needed to avoid this outcome.
While pandemic-induced shifts in technology use and resource reallocation could provide a modest boost, a housing bust and a disorderly climate transition, should they materialise, would dampen growth substantially.
The Quarterly also reviewed financial market developments in the three-month period before the recent, sharp escalation of geopolitical tension. During the period under review, markets were jolted by signals from advanced economy central banks that they would quicken the pace of monetary policy tightening.
Recent events have injected a great deal more uncertainty at a time when financial markets were unsettled and central banks faced the challenge of unexpectedly persistent inflationary pressures. Central banks will now have to carefully assess the impact of the geopolitical conflict on the inflation and growth outlook.
The March 2022 issue of the BIS Quarterly Review also:
- Examines the drivers of the stock market rotation from growth to value stocks. The shift may have broader implications for markets and the macroeconomy.
- Discusses the rise in cryptoasset trading in some EMEs – or "cryptoisation" – in times of economic and exchange rate instability. The increasing use of cryptoassets could encourage money laundering and illicit finance and ultimately impinge on monetary sovereignty.
1 The period under review extends from 29 November 2021 to 21 February 2022.