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The global crisis and financial intermediation in emerging market economies

Bank for International Settlements

No 54 in BIS Papers from 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.

Date: 2010 Written 2010-10
ISBN: 92-9131-850-7
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Chapters in this book:

The global crisis and financial intermediation in emerging market economies: an overview , pp 1-10 Downloads
Ramon Moreno
Cross-border bank lending to emerging market economies , pp 11-29 Downloads
Elod Takats
Domestic bank intermediation in emerging market economies during the crisis: locally owned versus foreign-owned banks , pp 31-48 Downloads
Dubravko Mihaljek
Impact of the crisis on local money and debt markets in emerging market economies , pp 49-72 Downloads
Ramon Moreno and Agustin Villar
Central bank instruments to deal with the effects of the crisis on emerging market economies , pp 73-96 Downloads
Ramon Moreno
The international banking crisis and its impact on Argentina , pp 97-111 Downloads
Central Bank of Argentina
Brazil and the 2008 panic , pp 113-120 Downloads
Mario Mesquita and Mario Toros
The evolution of credit in Chile , pp 121-130 Downloads
Kevin Cowan and Manuel Marfan
Central bank instruments to deal with the crisis – from the perspective of the People’s Bank of China , pp 131-132 Downloads
People's Bank of China
Effects of reserve requirements in an inflation targeting regime: the case of Colombia , pp 133-169 Downloads
Hernando Vargas-Herrera, Yanneth Betancourt Garcia, Carlos Varela and Norberto Rodríguez N.
The international banking crisis and domestic financial intermediation in the Czech Republic , pp 171-179 Downloads
Vitezslav Babicky
Dislocations in the FX swap and money markets in Hong Kong SAR during the global credit crisis of 2007-08 , pp 181-193 Downloads
Laurence Fung and Ip-wing Yu
The demise of the halcyon days in Hungary: “foreign” and “local” banks – before and after the crisis , pp 195-224 Downloads
Adam Banai, Julia Király and Marton Nagy
Impact of the international banking crisis on the Indian financial system , pp 225-234 Downloads
Anand Sinha
Domestic bank intermediation: domestically owned versus foreign-owned banks in Israel , pp 235-256 Downloads
David Marzuk
The Bank of Korea's policy response to the global financial crisis , pp 257-266 Downloads
Hee Chun Chung
Impact of the global crisis on Malaysia's financial system , pp 267-278 Downloads
Muhammad bin Ibrahim
The global financial crisis and policy response in Mexico , pp 279-298 Downloads
Jose Sidaoui, Manuel Ramos-Francia and Gabriel Cuadra
Monetary policy during the global financial crisis of 2007-09: the case of Peru , pp 299-316 Downloads
Zenon Quispe and Renzo Rossini
The impact of the global financial crisis on the Philippine financial system - an assessment , pp 317-342 Downloads
Diwa C Guinigundo
The international banking crisis and domestic financial intermediation: the experience of Poland , pp 343-346 Downloads
Witold Kozinski
The global financial crisis: impact on Saudi Arabia , pp 347-357 Downloads
Abdulrahman Al-Hamidy
The international banking crisis: effects and some key lessons , pp 359-363 Downloads
Ong Chong Tee
The international banking crisis and domestic financial intermediation in emerging market economies: issues for South Africa , pp 365-376 Downloads
South African Reserve Bank
The international banking crisis: impact on Thailand’s financial system and policy responses , pp 377-385 Downloads
Bank of Thailand
The effects of the global financial crisis on the Turkish financial sector , pp 387-405 Downloads
Mehmet Yorukoglu and Hakan Atasoy

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