Mapping Global Liquidity - imf.org · Mapping Global Liquidity Hyun Song Shin Brazil/IMF Conference...

Mapping Global Liquidity

Hyun Song Shin

Brazil/IMF Conference on“Managing Capital Flows in Emerging Markets"

Rio de Janeiro, May 26-27 2011

Three Waves of Global Liquidity

40% 42%34%

20%

41%

18%

40%

17%

48%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1995Q4-1998Q2 2006Q4-2008Q2 2009Q3-2010Q2

Portfolio Inflows

Other Inflows (incl.Banking)

Direct Inflows

Source: IMF SPR Dept

Feb 2011

GlobalBanks

WholesaleFundingMarket

Topography of Global BankingFrom Bruno and Shin (2011): “Mapping Global Liquidity”

Borrowersin A

Borrowersin B

Borrowersin C

Banksin A

Banksin B

Banksin C

GlobalBanks

WholesaleFundingMarket

Borrowersin A

Borrowersin B

Borrowersin C

Banksin A

Banksin B

Banksin C

GlobalBanks

WholesaleFundingMarket

Borrowersin A

Borrowersin B

Borrowersin C

Banksin A

Banksin B

Banksin C

GlobalBanks

WholesaleFundingMarket

Borrowersin A

Borrowersin B

Borrowersin C

Banksin A

Banksin B

Banksin C

GlobalBanks

WholesaleFundingMarket

Interoffice Assets of Foreign Banks in US

31-Dec-08

30-Jun-08

0

100

200

300

400

500

600

700

800

900

Mar-85

Sep-86M

ar-88Sep-89M

ar-91Sep-92M

ar-94Sep-95M

ar-97Sep-98M

ar-00Sep-01M

ar-03Sep-04M

ar-06Sep-07M

ar-09Sep-10

Bill

ion

Dol

lars

Interoffice Assets of Foreign Banks in the United States

Interoffice Assets of Foreign Banks in Japan

Feb‐07

‐

50

100

150

200

250

Apr-87Jun-88Aug-89O

ct-90D

ec-91Feb-93Apr-94Jun-95Aug-96O

ct-97D

ec-98Feb-00Apr-01Jun-02Aug-03O

ct-04D

ec-05Feb-07Apr-08Jun-09Aug-10

Hun

dred

 Billion Ye

n

Interoffice Assets of Foreign Banks in Japan

Feb‐07

‐200

‐150

‐100

‐50

0

50

100

Apr-87Jun-88Aug-89O

ct-90D

ec-91Feb-93Apr-94Jun-95Aug-96O

ct-97D

ec-98Feb-00Apr-01Jun-02Aug-03O

ct-04D

ec-05Feb-07Apr-08Jun-09Aug-10

Hun

dred

 Billion Ye

n

Net Interoffice Assets of Foreign Banks in Japan

Net Interoffice Assets of Foreign Banks in US

31-Dec-08

30-Jun-08

-100

0

100

200

300

400

500

600

700

Mar-85

Sep-86

Mar-88

Sep-89

Mar-91

Sep-92

Mar-94

Sep-95

Mar-97

Sep-98

Mar-00

Sep-01

Mar-03

Sep-04

Mar-06

Sep-07

Mar-09

Sep-10B

illio

n D

olla

rs

Net Interoffice Assets of Foreign Banks in the United States

Amounts Outstanding under Federal Reserve’sTerm Auction Facility (TAF)

0

50

100

150

200

250

Dec-07

Feb-08

Apr-08

Jun-08

Aug-08

Oct-08

Dec-08

Feb-09

Apr-09

Jun-09

Aug-09

Oct-09

Dec-09

Feb-10

Bill

ion

Dol

lars

DZ BK DeutscheBayerische HVHSH NordbankWestLBCommerzbankBayerische LBUnicreditDeutsche BKDresdnerDepfaCredit Indus et CommDexiaBNP ParibasNatixisSociete GeneraleUBSFortisMizuho CorporateBK Tokyo-MitsubishiSumitomo GroupNorinchukinArab BKG CorpAllied IrishBK of Nova ScotiaToronto Dominion BKRoyal BK of CanadaStandard CharteredBK of ScotlandRBSBarclays

Borrowersin A

Borrowersin B

Borrowersin C

Banksin A

Banksin B

Banksin C

GlobalBanks

WholesaleFundingMarket

Borrowersin A

Borrowersin B

Borrowersin C

Banksin A

Banksin B

Banksin C

GlobalBanks

WholesaleFundingMarket

External Claims of BIS Reporting Country Banks (March 2003 = 100)

100

0

50

100

150

200

250

300

350

400

450

500

Mar.1999

Mar.2000

Mar.2001

Mar.2002

Mar.2003

Mar.2004

Mar.2005

Mar.2006

Mar.2007

Mar.2008

Mar.2009

Mar.2010

Ireland

Spain

Turkey

Australia

South Korea

Chile

Brazil

Egypt

South Africa

100

0

500

1,000

1,500

2,000

2,500

3,000

Mar.1999

Mar.2000

Mar.2001

Mar.2002

Mar.2003

Mar.2004

Mar.2005

Mar.2006

Mar.2007

Mar.2008

Mar.2009

Mar.2010

Latvia

Lithuania

Estonia

Iceland

External Claims of BIS Reporting Country Banks (March 2003 = 100)

100

0

100

200

300

400

500

600

700

800

Mar.1999

Mar.2000

Mar.2001

Mar.2002

Mar.2003

Mar.2004

Mar.2005

Mar.2006

Mar.2007

Mar.2008

Mar.2009

Mar.2010

Slovakia

Poland

Ireland

Spain

Turkey

External Claims of BIS Reporting Country Banks (March 2003 = 100)

100

0

50

100

150

200

250

300

350

Mar.1999

Mar.2000

Mar.2001

Mar.2002

Mar.2003

Mar.2004

Mar.2005

Mar.2006

Mar.2007

Mar.2008

Mar.2009

Mar.2010

Australia

South Korea

Indonesia

Malaysia

Thailand

External Claims of BIS Reporting Country Banks (March 2003 = 100)

Some Observations• Baltics and emerging Europe stand out

– Surge of banking sector FDI (not all FDI is benign…)• Synchronization across the globe

– Spain, Ireland, Turkey, Korea, Australia…• But some diversity

– Brazil and Chile come late to the banking credit boom

– Thailand and Indonesia were deleveraging until mid-2000s

Clues from Term Auction Facility (TAF) Recipient Banks

0

50

100

150

200

250

Dec-07

Feb-08

Apr-08

Jun-08

Aug-08

Oct-08

Dec-08

Feb-09

Apr-09

Jun-09

Aug-09

Oct-09

Dec-09

Feb-10

Bill

ion

Dol

lars

DZ BK DeutscheBayerische HVHSH NordbankWestLBCommerzbankBayerische LBUnicreditDeutsche BKDresdnerDepfaCredit Indus et CommDexiaBNP ParibasNatixisSociete GeneraleUBSFortisMizuho CorporateBK Tokyo-MitsubishiSumitomo GroupNorinchukinArab BKG CorpAllied IrishBK of Nova ScotiaToronto Dominion BKRoyal BK of CanadaStandard CharteredBK of ScotlandRBSBarclays

Three Groups of Global Banks

• Centralized Portfolio Allocators– Non-Spanish European Banks (UK, German, French,

Dutch, Swiss…) plus some US banks

• Decentralized (Autonomous) Subsidiaries– Subsidiaries of Spanish and US banks in Latin America

• Yield Chasers– German public banks and Japanese savings banks

(German Landesbanken, Norinchukin)

External Claims of BIS Reporting Banks by Nationality

0

100

200

300

400

500

600

700

800

Greece Ireland Spain Australia South Korea

Bill

ion

Dol

lars

Other

Japan

United States

United Kingdom

Netherlands

France

Germany

Source: BIS Banking Statistics Table 9D

December 2010

External Claims of BIS Reporting Banks by Nationality

Source: BIS Banking Statistics Table 9D

December 20100%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Greece Ireland Spain Australia SouthKorea

Other

Japan

United States

United Kingdom

Netherlands

France

Germany

External Claims of BIS Reporting Banks by Nationality

Source: BIS Banking Statistics Table 9D

December 20100

100

200

300

400

500

600

Brazil Chile Mexico

Bill

ion

Dol

lars

Other

Japan

United States

Spain

United Kingdom

Netherlands

France

Germany

External Claims of BIS Reporting Banks by Nationality

Source: BIS Banking Statistics Table 9D

December 20100%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Brazil Chile Mexico

Other

Japan

United States

Spain

United Kingdom

Netherlands

France

Germany

Korean Lessons

Non-Core Liabilities for Korea

0

100

200

300

400

500

600

700

800

Jan-91

Jan-93

Jan-95

Jan-97

Jan-99

Jan-01

Jan-03

Jan-05

Jan-07

Jan-09

Trill

ion

Won

[Other] FX borrowing

[Lf] Debt Securities

[Lf] Repos

[M2] Promissory Note 2

[M2] Promissory Note 1

[M2] Certificate of Deposit

Source: Shin and Shin (2010)

Non-Core Liabilities as Fraction of M2

Jan-98

Jan-09

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

0.50

0.55

Jan-91

Jan-92

Jan-93

Jan-94

Jan-95

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10Ratio of Non-Core Liabilities to M2 in Korea

Source: Shin and Shin (2010)

-25

-20

-15

-10

-5

0

5

10

15

2005/0

1

2005/0

4

2005/0

7

2005/1

0

2006/0

1

2006/0

4

2006/0

7

2006/1

0

2007/0

1

2007/0

4

2007/0

7

2007/1

0

2008/0

1

2008/0

4

2008/0

7

2008/1

0

2009/0

1

2009/0

4

2009/0

7

2009/1

0$ Billion

Bank FXliabilities

Equity

Equity and FX Bank Liability Flows (Korea)Lehman

bankruptcy

Inflows

Outflows

Lesson from Korea:Beware Hedging Activity with FX Derivatives

Foreign Bank Branch in Korea

Korean Export

firm

Long-dated $ receivables

A L

ForwardLong $

Lesson from Korea:Beware Hedging Activity with FX Derivatives

Korean Export

firm

￦ $

Long-dated $ receivables

A L

ForwardLong $

￦

Shortdebt

Bonds

Foreign Bank Branch in Korea

Lesson from Korea:Beware Hedging Activity with FX Derivatives

Korean Banking sector

Korean Export

firm

￦ $

Long-dated $ receivables

A L

ForwardLong $

￦

Shortdebt

Bonds

No currency mismatch but maturity mismatch,

vulnerable to deleveraging

Foreign Bank Branch in Korea

Case of Brazil:Hedging the Circumvention of Tax on Transactions (IOF)

ForeignPortfolioInvestor

Sell $ Forward (Buy Real)

A L

ForwardLong $

Brazilian Bank

Case of Brazil:Hedging the Circumvention of Tax on Transactions (IOF)

ForeignPortfolioInvestor

$

Sell $ Forward (Buy Real)

A L

ForwardLong $

Shortdebt

Brazilian Bank

BRLbonds

Case of Brazil:Hedging the Circumvention of Tax on Transactions (IOF)

ForeignPortfolioInvestor

$

Sell $ Forward (Buy Real)

A L

ForwardLong $

Shortdebt

No currency mismatch but maturity mismatch,

vulnerable to deleveraging

Brazilian Bank

BRLbonds

-25

-20

-15

-10

-5

0

5

10

15

2005/0

1

2005/0

4

2005/0

7

2005/1

0

2006/0

1

2006/0

4

2006/0

7

2006/1

0

2007/0

1

2007/0

4

2007/0

7

2007/1

0

2008/0

1

2008/0

4

2008/0

7

2008/1

0

2009/0

1

2009/0

4

2009/0

7

2009/1

0$ Billion

Bank FXliabilities

Equity

Equity and FX Bank Liability Flows (Korea)Lehman

bankruptcy

Inflows

Outflows

What’s Next?

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

Jan-93

Mar-93

May-93

Jul-93

Sep-93

Nov-93

Jan-94

Mar-94

May-94

Jul-94

Sep-94

Nov-94

Jan-95

Mar-95

May-95

Jul-95

Sep-95

Nov-95

3 mo 10 yr 30 yr

2012 = 1994?U

S Tr

easu

ry Y

ield

s (%

)