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Put a long investment, take a short debt and use it as much as possible. This is the way to make money in finance. How banks didn’t always live. But we know very well that this story can work with access and panic for financial crisis. This is the Great Financial Crisis (GFC) of 2007-09. Since then, it has been explained as a bank for international settlements The latest annual economic reportThe financial system has changed something big. But this is not a central character.
Moreover, notes Hyun song shinEconomic consultant in BIS said, “Although the transgression of a real economy, the money and financial system is already being completely tied.” If it sounds like an accident that happens, you are quite right. Central banks should be ready to walk for the rescue.
It is an interesting person if BIS said. Thus, after the GFC, the system was not radically different. It just changed who he was involved. In the crisis until the crisis, the form of dominant lender was in the form of a special sector, especially mortgage loans. After that, lend to the private sector and exploded to governments to governments. The pandemic has accelerated this trend.
It was not surprising: if people want to save and lend, someone else should borrow and spend. This macroeconomic 101. In addition to the direction change, the change of mediators came: Global portfolio managers came to the place of large banks. (See diagrams.)
As a result, border holdings of borders have increased a lot. Here are what it is important, not the net, holding, but in rudeness. The latter is relevant to long-term sustainability of savings and spending macroeconomic patterns. Changes in the financial arms (and managed) past financial arms are more relevant for changes, especially the borderless arm. Moreover Notes shin“The largest increase in the portfolio holding, especially among the leading economies between the United States and Europe.” Developing economies are relatively less involved in this lending.
How does the financial system work on this new border? Has two fundamental features: leading roles of foreign exchange swaps and non-bank financial intermediaries.
The largest part of this cross-border lending is to buy dollar bonds, especially the US treasures. These bonds end with foreign agencies, a dollar assets and domestic currency obligation, such as bonds, pension funds, insurance companies and hedge funds. Currency hedge is important. The banking sector plays a key role in launching the market for foreign exchange swaps that provide these hedges. Moreover, a forex exchange is “a hostage debt operation.” Again, these do not appear on the balance sheets.
According to BIS, the outstanding Forex swaps (including Forex and currency exchange) reached $ 111, in the end of 2024, forex swaps and forex swaps and the amount of this amount are carried forward. This is more than the bank’s claims ($ 40) and international bonds ($ 29TN). Moreover, the largest and fastest growing part of the market consists of contracts with non-dealers. Finally, 90 percent of the forex swaps have less than one year and more than three-quarters of the operation.
As BIS notes, it also affects the transfer of funding for non-transparent borders, money policy. One of the proposals is the greater role of non-bank financial intermediaries, especially the hedrel funds, “can contribute to more related financial conditions in the countries.” Some of this are very thin. Given the large-scale foreign property of US bonds, for example, the conditions in the home markets may be transferred to the United States. Again, the owners of market debts can trigger adjustments in the internal prices that affect the dollar value.
What risks are in this new financial system? As noted, banks are active in the market for forex replacement. They also provide many repo financing for hedge funds that are active in the bond market. In addition, according to BIS, more than 70 percent of bilateral repo financing from banks is zero hairstyle. As a result, lender controllers are very few control of Hedge Funds in these markets. At least, non-US banks are active in financing for companies engaged in these markets.
What does all mean? Well, now countries, especially among high-income countries, even in terms of countries, political and trade relations, there are closely combined financial systems among high-income countries. Moreover, most of the finances are dollars compared to a relatively short period. It is easy to imagine the conditions of the dried conditions in response to great movements in bond products or other shock. As in GFC and Pandemia, the federal reserve was changed to both direct and other Central Banks in Europe, as well as the last remedy to other central banks. We assume that the Fed is really saved. But can this be taken, especially after Jay Powell replaced next year?
The BIS explanatory system has many of the fragility of traditional banking, but there is less transparency. Market values, if capital values are safe, there is a large number of work that is not a large number of work, which is funded on a short-term assets. This system requires an active lender of the latest resort and the desire to continue deep international cooperation in the crisis. Should work. Will it be?
