BIS Quarterly Review

BIS Quarterly Review

March 2017

International banking and financial market developments

BIS Quarterly Review Monetary and Economic Department

Editorial Committee:

Claudio Borio

Benjamin Cohen

Dietrich Domanski

Hyun Song Shin

General queries concerning this commentary should be addressed to Benjamin Cohen (tel +41 61 280 8421, e-mail: ben.cohen@), queries concerning specific parts to the authors, whose details appear at the head of each section, and queries concerning the statistics to Philip Wooldridge (tel +41 61 280 8006, e-mail: philip.wooldridge@).

This publication is available on the BIS website (publ/qtrpdf/r_qt1703.htm).

? Bank for International Settlements 2017. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated.

ISSN 1683-0121 (print) ISSN 1683-013X (online)

BIS Quarterly Review

March 2017

International banking and financial market developments

Beyond swings in risk appetite .................................................................................................... 1 The breakdown in correlations ........................................................................................... 2 Box A: What is driving the renewed increase in Target2 balances? .............................................................................................................. 7 EMEs: between a rock and a hard place ......................................................................... 9 Big swings in Chinese financial markets as liquidity tightens ............................. 11 Box B: From wealth management products to the bond market .......................................................................................... 13

Highlights of global financial flows ......................................................................................... 15 Takeaways ................................................................................................................................ 15 Global credit recovered in the second half of 2016 ................................................ 16 Box : Non-US banks' global dollar funding grows despite US money market reform .................................................................... 22

Special Features

Consumption-led expansions ................................................................................................... 25 Enisse Kharroubi and Emanuel Kohlscheen

Characteristics of consumption-led growth ............................................................... 27 Implications of consumption-led expansions ............................................................ 30 Box : Estimation of the effects of consumption-led expansions on subsequent GDP and consumption growth ................................ 31 Conclusion ............................................................................................................................... 35 Annex ..........................................................................................................................................37

The new era of expected credit loss provisioning ............................................................. 39 Benjamin Cohen and Gerald Edwards Jr

Why provision for expected credit losses? ................................................................. 40 Overview of the new standards ........................................................................................ 42 Box A: Key aspects of the BCBS supervisory guidance, 2015 ............................. 45 The transition: banks' progress in implementation ................................................. 46

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Box C: Enhanced risk disclosure needed during the transition period to IFRS 9 .......................................................................... 48 The steady state: impact on the financial system ..................................................... 49 Conclusions .............................................................................................................................. 53

The quest for speed in payments ............................................................................................. 57 Morten Bech, Yuuki Shimizu and Paul Wong

Emergence of fast (retail) payments .............................................................................. 58 Box : How do fast payment systems work? ................................................................ 59 Technology adoption and diffusion ............................................................................... 60 The diffusion of real-time gross settlement ................................................................ 62 The diffusion of fast payments ......................................................................................... 63 Continuing evolution of the payments landscape ................................................... 66 Conclusions .............................................................................................................................. 67

The bond benchmark continues to tip to swaps ................................................................ 69 Lawrence Kreicher, Robert McCauley and Philip Wooldridge

Benchmark tipping and the role of basis risk ............................................................. 70 Tracking the tipping process ............................................................................................. 72 Bond benchmarks around the world ............................................................................. 73 The shift from government futures to swaps, 1995?2016 ..................................... 75 In conclusion: the persistence of futures trading ...................................................... 77 Box : Disentangling overnight index swaps from interest rate swaps ..................................................................................................... 79

BIS statistics: Charts ............................................................................................................... A1 Special features in the BIS Quarterly Review ...................................................... B1 List of recent BIS publications ....................................................................................... C1

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BIS Quarterly Review, March 2017

Notations used in this Review

billion e lhs, rhs $ ... . ?

thousand million estimated left-hand scale, right-hand scale US dollar unless specified otherwise not available not applicable nil or negligible

Differences in totals are due to rounding.

The term "country" as used in this publication also covers territorial entities that are not states as understood by international law and practice but for which data are separately and independently maintained.

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