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What do new forms of finance mean for EM central banks?

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  • Bank for International Settlements

Abstract

Financial intermediation in emerging market economies (EMEs) has been transformed over the past decade: a higher volume of bond financing has gone hand-in-hand with a growing internationalization of financial markets and significant changes to the balance sheets of banks. The 2015 Deputy Governor meeting examined three interrelated aspects of the new forms of financial intermediation in EMEs: (a) the role of banks; (b) the role of debt securities markets; and (c) implications of recent changes in financial intermediation for monetary policy. One conclusion is that greater access of households to bank credit and of EME corporations to domestic and external bond markets is a double-edged sword. On the one hand, it has helped foster financial development, diversifying funding sources and reducing credit risk concentration. On the other hand, it has also been accompanied by increased risks and vulnerabilities - as the financial market turbulences of 2015 illustrated. Domestic bond markets now react more strongly to global forces. Larger foreign currency debt has made many companies more vulnerable to exchange rate shocks. Credit cycles have also become more pronounced. These developments raise questions about the appropriate instruments for EME monetary authorities as they seek to contain monetary and financial stability risks.

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  • Bank for International Settlements, 2015. "What do new forms of finance mean for EM central banks?," BIS Papers, Bank for International Settlements, number 83.
    • Handle: RePEc:bis:bisbps:83
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    References listed on IDEAS

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    1. Koray Alper & Hakan Kara & Mehmet Yorukoglu, 2013. "Reserve Options Mechanism," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 13(1), pages 1-14.
    2. Ahmet Aysan & Salih Fendoglu & Mustafa Kilinc, 2014. "Managing short-term capital flows in new central banking: unconventional monetary policy framework in Turkey," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 4(1), pages 45-69, June.
    3. Valentina Bruno & Hyun Song Shin, 2015. "Cross-Border Banking and Global Liquidity," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(2), pages 535-564.
    4. Erdem Basci & Hakan Kara, 2011. "Financial Stability and Monetary Policy," Working Papers 1108, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
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    1. Madhusudan Mohanty & Kumar Rishabh, 2016. "Financial intermediation and monetary policy transmission in EMEs: What has changed post-2008 crisis?," BIS Working Papers 546, Bank for International Settlements.
    2. Ashima Goyal & Akhilesh K. Verma, 2020. "Cross border flows, financial Intermediation and interactions of policy rules in a small open economy model," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2020-008, Indira Gandhi Institute of Development Research, Mumbai, India.
    3. Christian Friedrich & Pierre Guérin, 2020. "The Dynamics of Capital Flow Episodes," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(5), pages 969-1003, August.
    4. Halima Jibril & Annina Kaltenbrunner & Effi Kesidou, 2018. "Financialisation and innovation in emerging economics," FMM Working Paper 27-2018, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    5. Ashima Goyal & Akhilesh K. Verma & Rajeswari Sengupta, 2022. "External shocks, cross-border flows and macroeconomic risks in emerging market economies," Empirical Economics, Springer, vol. 62(5), pages 2111-2148, May.
    6. Andreas Kern & Puspa Amri, 2021. "Political credit cycles," Economics and Politics, Wiley Blackwell, vol. 33(1), pages 76-108, March.
    7. Ashima Goyal & Rajeswari Sengupta & Akhilesh Verma, 2019. "External debt financing and macroeconomic instability in emerging market economies," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2019-013, Indira Gandhi Institute of Development Research, Mumbai, India.

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