| Abstract: |
The post-crisis period has seen a considerable shift in the composition and
drivers of international bank lending and international bond issuance, the two
main components of global liquidity. The sensitivity of both types of flow to
US monetary policy rose substantially in the immediate aftermath of the Global
Financial Crisis, peaked around the time of the 2013 Fed “taper tantrum”, and
then partially reverted towards pre-crisis levels. Conversely, the
responsiveness of international bank lending to global risk conditions
declined considerably post-crisis and became similar to that of international
debt securities. The increased sensitivity of international bank flows to US
monetary policy has been driven mainly by post-crisis changes in the behaviour
of national lending banking systems, especially those that ex ante had less
well capitalized banks. By contrast, the post-crisis fall in the sensitivity
of international bank lending to global risk was mainly due to a compositional
effect, driven by increases in the lending market shares of better-capitalized
national banking systems. The post-2013 reversal in the sensitivities to US
monetary policy partially reflects the expected divergence of the monetary
policy of the US and other advanced economies, highlighting the sensitivity of
capital flows to the degree of commonality of cycles and the stance of policy.
Moreover, global liquidity fluctuations have largely been driven by policy
initiatives in creditor countries. Policies and prudential instruments that
reinforced lending banks’ capitalization and stable funding levels reduced the
volatility of international lending flows. |