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The global crisis and financial intermediation in emerging market economies

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  • Bank for International Settlements

Abstract

On 28-29 January 2010, senior central bank officials from emerging market economies (EMEs) met at the BIS in Basel to discuss how policymakers had responded to the effects of the international financial crisis on emerging market economies. Although hit hard, most EMEs displayed remarkable resilience. Four aspects were discussed: Capital flows and cross-border lending. Policymakers could do little to counter the sharp declines in the supply of cross-border bank financing and more broadly of capital flows at the height of the crisis. But comparatively strong macroeconomic fundamentals meant the crisis was short-lived, and capital flows recovered. Financial intermediation in EMEs during the crisis: home-owned versus foreign-owned banks. EME banks adjusted to the crisis in ways that stabilised their financial positions: they reduced (already limited) reliance on wholesale markets, curbed new lending, shifted towards less risky loans and increased holdings of government bonds, and shortened the maturity of their assets. While foreign bank affiliates and domestic banks often behaved in similar ways, it was noted that foreign banks: (i) did not always fully appreciate the risk posed by currency mismatches (eg in central and Eastern Europe); (ii) reduced their participation in domestic interbank or credit markets compared to domestic banks; (iii) sometimes provided financing to their parents during a period when funding markets in the advanced countries were experiencing stress. Foreign bank behaviour may have been influenced by the funding model, the financial condition of the parent and the strategic importance of the market. The experience has prompted a reassessment of the relative merits of foreign branches versus subsidiaries. There is now much greater emphasis on the responsibilities of host country supervisors. The impact of the crisis on local money and debt markets. The crisis adversely affected financing in foreign exchange markets (eg the swap market), and to a lesser degree the domestic interbank market. There were significant effects on domestic bond markets in some cases. Central bank instruments in response to the crisis. Central banks responded to the crisis by providing financing in foreign and domestic currencies. An important issue in the provision of foreign currency financing concerned the pros and cons of using foreign reserves as opposed to other sources, notably Federal Reserve swap facilities. The authorities changed their monetary operations or set up special facilities (eg to widen the range of securities purchased and lengthen their maturities) to support local currency funding. Policy rates and (in some cases) reserve requirements were also lowered countercyclically.

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  • Bank for International Settlements, 2010. "The global crisis and financial intermediation in emerging market economies," BIS Papers, Bank for International Settlements, number 54, June.
  • Handle: RePEc:bis:bisbps:54
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    References listed on IDEAS

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    1. Quispe, Zenon & Leon, David & Contreras, Alex, 2009. "La crisis global 2007-2009 y la Política Monetaria del Banco Central de Reserva del Perú," Revista Moneda, Banco Central de Reserva del Perú, issue 139, pages 23-33.
    2. Mr. Etienne B Yehoue & Kotaro Ishi & Mr. Mark R. Stone, 2009. "Unconventional Central Bank Measures for Emerging Economies," IMF Working Papers 2009/226, International Monetary Fund.
    3. Renzo Rossini & Zenon Quispe & Rocío Gondo, 2008. "Macroeconomic implications of capital inflows: Peru 1991–2007," BIS Papers chapters, in: Bank for International Settlements (ed.), Financial globalisation and emerging market capital flows, volume 44, pages 363-387, Bank for International Settlements.
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    4. Sang Hoon Kang & Ron McIver & Seong-Min Yoon, 2016. "Modeling Time-Varying Correlations in Volatility Between BRICS and Commodity Markets," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(7), pages 1698-1723, July.
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    6. Mai, Nhat Chi, 2015. "Efficiency of the banking system in Vietnam under financial liberalization," OSF Preprints qsf6d, Center for Open Science.
    7. Rossini, Renzo & Quispe, Zenón & Rodríguez, Donita, 2013. "Flujo de capitales, política monetaria e intervención cambiaria en el Perú," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 25, pages 39-50.
    8. Stefany Moreno-Burbano & Andrés Vargas-Vargas & Juan Sebastián Vélez-Velásquez, 2019. "Interest rate dispersion in commercial loans," Borradores de Economia 1088, Banco de la Republica de Colombia.
    9. C. P. Chandrasekhar, 2011. "Rethinking regulation: international banks in Asian emerging markets," PSL Quarterly Review, Economia civile, vol. 64(258), pages 249-266.
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    11. Szabolcs Szikszai & Tamás Badics & Csilla Raffai & Zsolt Stenger & András Tóthmihály, 2013. "Studies in Financial Systems No 8 Hungary," FESSUD studies fstudy08, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    12. Ngwu, Franklin N. & Bavoso, Vincenzo & Chen, Zheyang, 2017. "Securitisation in BRICS: Issues, challenges and prospects," Research in International Business and Finance, Elsevier, vol. 42(C), pages 1219-1227.
    13. Carlos A. Ibarra, 2014. "Trade, investment, and capital flows:Mexico's macroeconomic adjustment to the Great Recession," Working Paper Series Sobre México 2014002, Sobre México. Temas en economía.
    14. Dang-Thanh Ngo & Linh Thi Phuong Nguyen, 2012. "Total Factor Productivity of Thai Banks in 2007-2010. An Application of DEA and Malmquist Index," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 2(5), pages 1-2.
    15. Mr. Kalin I Tintchev, 2013. "Connected to Whom? International Interbank Borrowing During the Global Crisis," IMF Working Papers 2013/014, International Monetary Fund.
    16. Yavuz Arslan & Mathias Drehmann & Boris Hofmann, 2020. "Central bank bond purchases in emerging market economies," BIS Bulletins 20, Bank for International Settlements.
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