Two Phases of Global Liquidity
Hyun Song Shin
DNB Conference on Net and Gross Capital Flows
18 March 2013
Two Phases of Global Liquidity
1
Global Liquidity: Two Phases
• Phase 1 (2001 - 2011)
— US dollar as currency underpinning cross-border banking
— European banks as carriers of global liquidity conditions across borders
— “Global Banking Glut”
• Phase 2 (2011 - )
— Banking sector retrenchment
— Bond market and non-banks as carriers of global liquidity
Two Phases of Global Liquidity
2
Trillion dollars
Net interoffice assets
Borrowings from others
Cash assets
Large time deposits
Securities
Borrowings from banks in U.S.
Loans and leases
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
23-Nov-11
11-May-11
27-Oct-10
14-Apr-10
30-Sep-09
18-Mar-09
03-Sep-08
20-Feb-08
08-Aug-07
24-Jan-07
12-Jul-06
28-Dec-05
15-Jun-05
01-Dec-04
19-May-04
05-Nov-03
23-Apr-03
09-Oct-02
27-Mar-02
12-Sep-01
28-Feb-01
16-Aug-00
02-Feb-00
21-Jul-99
06-Jan-99
-2.0
Figure 1. Assets and liabilities of foreign banks in the U.S. (Source: Federal Reserve H8 weekly series on
assets and liabilities of foreign-related institutions)
Billion dollars
Two Phases of Global Liquidity
3
800
600
400
Net interoffice assets of foreign banks in US
200
0
-200
30-Nov-11
03-Nov-10
07-Oct-09
10-Sep-08
15-Aug-07
19-Jul-06
22-Jun-05
26-May-04
30-Apr-03
03-Apr-02
07-Mar-01
09-Feb-00
13-Jan-99
17-Dec-97
20-Nov-96
25-Oct-95
28-Sep-94
01-Sep-93
05-Aug-92
10-Jul-91
13-Jun-90
17-May-89
20-Apr-88
-400
Figure 2. Net interoffice assets of foreign banks in U.S. given by negative of Federal Reserve weekly H8 series
on “net due to related foreign offices of foreign-related institutions”
Two Phases of Global Liquidity
4
2008Q1
20.0 Trillion
Other
dollars
Swiss Franc
15.0
Yen
Sterling
10.0
Euro
US dollar
5.0
Assets
0.0
-5.0
Liabilities
-10.0
-15.0
2012-Q2
2010-Q4
2009-Q2
2007-Q4
2006-Q2
2004-Q4
2003-Q2
2001-Q4
2000-Q2
1998-Q4
1997-Q2
1995-Q4
1994-Q2
1992-Q4
1991-Q2
1989-Q4
1988-Q2
1986-Q4
1985-Q2
1983-Q4
1982-Q2
1980-Q4
1979-Q2
1977-Q4
-20.0
Figure 3. Foreign currency claims and liabilities of BIS reporting banks (Source: BIS Locational statistics
5A)
Two Phases of Global Liquidity
5
15.0
Trillion
dollars
Euro
10.0
US dollar
5.0
Assets
0.0
-5.0
Liabilities
-10.0
2012-Q2
2010-Q4
2009-Q2
2007-Q4
2006-Q2
2004-Q4
2003-Q2
2001-Q4
2000-Q2
1998-Q4
1997-Q2
1995-Q4
1994-Q2
1992-Q4
1991-Q2
1989-Q4
1988-Q2
1986-Q4
1985-Q2
1983-Q4
1982-Q2
1980-Q4
1979-Q2
1977-Q4
-15.0
Figure 4. Foreign currency claims and liabilities of BIS reporting banks (Source: BIS Locational statistics
5A)
Two Phases of Global Liquidity
Trillion
Dollars
6
11.0
2008Q1
10.0
US chartered
commercial
banks' total
financial
assets
9.0
8.0
7.0
US dollar
assets of
banks outside
US
6.0
5.0
4.0
3.0
2010Q2
2009Q1
2007Q4
2006Q3
2005Q2
2004Q1
2002Q4
2001Q3
2000Q2
1999Q1
2.0
Figure 5. US dollar cross-border foreign currency claims and US commercial bank total assets (Source: Flow
of Funds, Federal Reserve and BIS locational banking statistics, Table 5A)
Two Phases of Global Liquidity
7
European
Global
Banks
Shadow banking
system
US
Borrowers
Wholesale
funding market
US
Banking
Sector
US
Households
border
Figure 6. European global banks add intermediation capacity for connecting US savers and borrowers
Two Phases of Global Liquidity
8
Figure 7. US Dollar-denominated assets and liabilities of euro area banks (Source: ECB Financial Stability
Review, June 2011, p. 102)
Two Phases of Global Liquidity
(%) 9
90
80
Asia
70
60
United States
50
40
Other Europe
30
20
Other euro area
10
2011 H1
2010 H2
2010 H1
2009 H2
2009 H1
2008 H2
2008 H1
2007 H2
2007 H1
2006 H2
0
Belgium, Italy,
Spain, Portugal,
Ireland, Greece
Figure 8. Amount owed by banks to US prime money market funds (% of total), based on top 10 prime
MMFs, representing $755 bn of $1.66 trn total prime MMF assets (Source: IMF GFSR Sept 2011, data
from Fitch).
Two Phases of Global Liquidity
10
Amount Owed by European Banks to US Prime Money Market Funds
end-June, 2011 (by nationality of borrowing bank)
250
Billion Dollars
200
150
100
50
Luxembourg
Belgium
Austria
Spain
Italy
Denmark
Norway
Sweden
Switzerland
Germay
Netherlands
United Kingdom
France
0
Figure 9. Amount owed by European banks to US prime money market funds by nationality of borrowing
bank (end-June 2011) (Source: IMF GFSR September 2011)
Trillion Dollars
Two Phases of Global Liquidity
2.0
11
Liabilities: Foreign official
assets in United States (line 56)
1.5
Liabilities: Foreign claims on
U.S. non-banks (line 68)
1.0
-0.5
Liabilities: Foreign claims on
U.S. banks and securities
brokers (line 69)
Liabilities: Foreign private
holding of U.S. securities other
than Treasurys (line 66)
Assets: US holding of foreign
securities (line 52)
-1.0
Assets: Claims of U.S. nonbanks on foreigners (line 53)
0.5
0.0
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
-1.5
Assets: Claims of U.S. banks
and securities brokers on
foreigners (line 54)
Figure 10. US gross capital flows by category (Source: US Bureau of Economic Analysis). Increase in US
liability to foreigners is indicated by positive bar, increase in US claims on foreigners is indicated by negative
bar.
Trillion Dollars
Two Phases of Global Liquidity
12
7.0
6.0
5.0
Non-European BIS
reporting countries
4.0
Other European BIS
reporting countries
Switzerland
3.0
United Kingdom
2.0
France
1.0
Germany
2010-Q4
2010-Q2
2009-Q4
2009-Q2
2008-Q4
2008-Q2
2007-Q4
2007-Q2
2006-Q4
2006-Q2
2005-Q4
2005-Q2
0.0
Figure 11. Foreign claims of BIS reporting banks on US counterparties (Source: BIS consolidated banking
statistics, Table 9D)
Billion Dollars
Two Phases of Global Liquidity
13
250
200
150
100
50
Feb-10
Dec-09
Oct-09
Aug-09
Jun-09
Apr-09
Feb-09
Dec-08
Oct-08
Aug-08
Jun-08
Apr-08
Feb-08
Dec-07
0
DZ BK Deutsche
Bayerische HV
HSH Nordbank
WestLB
Commerzbank
Bayerische LB
Unicredit
Deutsche BK
Dresdner
Depfa
Credit Indus et Comm
Dexia
BNP Paribas
Natixis
Societe Generale
UBS
Fortis
Mizuho Corporate
BK Tokyo-Mitsubishi
Sumitomo Group
Norinchukin
Arab BKG Corp
Allied Irish
BK of Nova Scotia
Toronto Dominion BK
Royal BK of Canada
Standard Chartered
BK of Scotland
RBS
Barclays
Figure 12. Top 30 claims outstanding on Federal Reserve Term Auction Facility (TAF) on non-US banks
(Source: Federal Reserve disclosures on TAF)
Two Phases of Global Liquidity
14
Gross Positions versus Net Positions
• Large gross positions created by European banks impact on US financial
conditions.
• But net positions (current account imbalances) are small since assets
and liabilities net out.
• Global Savings Glut (net positions) versus the Global Banking Glut
(gross positions)
Two Phases of Global Liquidity
15
Borrowers
in A
Banks
in A
Borrowers
in B
Banks
in B
Global
Banks
Wholesale
Funding
Market
Banks
in C
Borrowers
in C
Figure 13. Topography of global liquidity
Two Phases of Global Liquidity
16
Borrowers
in A
Banks
in A
Borrowers
in B
Banks
in B
Global
Banks
Wholesale
Funding
Market
Banks
in C
Borrowers
in C
Figure 14. Topography of global liquidity
Two Phases of Global Liquidity
17
500
Dec 2008
450
Ireland
400
Spain
350
Turkey
300
Australia
250
South Korea
200
Chile
Mar 2003 =100
150
Brazil
100
South Africa
50
Dec.2011
Mar.2011
Jun.2010
Sep.2009
Dec.2008
Mar.2008
Jun.2007
Sep.2006
Dec.2005
Mar.2005
Jun.2004
Sep.2003
Dec.2002
Mar.2002
Jun.2001
Sep.2000
Dec.1999
Mar.1999
0
Figure 15. Cross-border claims (loans and deposits) of BIS reporting banks on counterparties listed on right
(Source: BIS locational banking statistics Table 7A)
Two Phases of Global Liquidity
18
450
400
Australia
350
South Korea
300
Indonesia
250
Malaysia
200
Thailand
150
100
100
50
Mar.2011
Mar.2010
Mar.2009
Mar.2008
Mar.2007
Mar.2006
Mar.2005
Mar.2004
Mar.2003
Mar.2002
Mar.2001
Mar.2000
Mar.1999
0
Figure 16. Cross-border claims (loans and deposits) of BIS reporting banks on counterparties listed on right
(Source: BIS locational banking statistics Table 7A)
Two Phases of Global Liquidity
19
800
700
Slovakia
600
Poland
500
Ireland
400
Spain
300
Turkey
200
100
100
Mar.2011
Mar.2010
Mar.2009
Mar.2008
Mar.2007
Mar.2006
Mar.2005
Mar.2004
Mar.2003
Mar.2002
Mar.2001
Mar.2000
Mar.1999
0
Figure 17. Cross-border claims (loans and deposits) of BIS reporting banks on counterparties listed on right
(Source: BIS locational banking statistics Table 7A)
Two Phases of Global Liquidity
20
3,000
2,500
2,000
Latvia
1,500
Lithuania
1,000
Estonia
500
Iceland
100
Dec.2011
Mar.2011
Jun.2010
Sep.2009
Dec.2008
Mar.2008
Jun.2007
Sep.2006
Dec.2005
Mar.2005
Jun.2004
Sep.2003
Dec.2002
Mar.2002
Jun.2001
Sep.2000
Dec.1999
Mar.1999
0
Figure 18. Cross-border claims (loans and deposits) of BIS reporting banks on counterparties listed on right
(Source: BIS locational banking statistics Table 7A)
Two Phases of Global Liquidity
21
Core and Non-Core Bank Liabilities
• Core: Liabilities to domestic household and non-financial claim holders
• Non-Core: Liabilities to financial intermediaries and foreign creditors
Ratio of non-core to core liabilities is:
• Procyclical
• Mirrors lowering of credit standards
Two Phases of Global Liquidity
Borrowers
22
Banking
Sector
Domestic
Depositors
Two Phases of Global Liquidity
23
Foreign
Creditors
New
Borrowers
Borrowers
Banking
Sector
Domestic
Depositors
Two Phases of Global Liquidity
24
Credit Quality and Non-Core Bank Liabilities
• Non-core liabilities reflect expansion in lending beyond “normal” levels
• Loans financed by non-core liabilities are of lower credit quality
• Even if liquidity support is forthcoming, loans made with lower credit
standards go bad eventually
• Prolonged economic slumps exacerbate bad loans, without or without
liquidity support (e.g. Japan)
• Short-term non-core is vulnerable to reversal
Trillion Euros
Two Phases of Global Liquidity
25
2.0
IE_8.9.12,13,14 Other loans to
households and nonprofits
Dec 2008 1.87 trillion
1.8
IE_8_9.11 Credit for purchase of
consumer durables
1.6
IE_8_9.10 Credit for
homeownership
1.4
8_9.9 - 9_9.10 Home improvement
credit
1.2
Dec 1998
1.0
IE_8_9.7 Loans for real estate
financing
0.8
IE_8_9.5 Credit for construction
funding
0.6
414 billion
8_9.6 - 8_9.7 Credit financing
services (non real estate)
0.4
0.2
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
0.0
IE_8_9.4 Credit financing industry
(excluding construction)
IE_8_9.3 Credit for financing
agriculture, hunting, forestry and
fishing
Figure 19. Spain: banking sector total domestic credit (Source: Bank of Spain)
Trillion Euros
Two Phases of Global Liquidity
26
1.2
1.0
IE_8_2.5 Other
bank liabilities
(deposits > 3m,
securities and
repos) held by
households, nonfinancial
corporations and
non-profits
0.8
Dec 1998
0.6
413 billion
0.4
IE_8_2.1 Cash
and deposits
(<3m) held by
households, nonfinancial firms
and non-profits
0.2
Dec-11
Dec-10
Dec-09
Dec-08
Dec-07
Dec-06
Dec-05
Dec-04
Dec-03
Dec-02
Dec-01
Dec-00
Dec-99
Dec-98
Dec-97
Dec-96
Dec-95
0.0
Figure 20. Spain: Core liabilities of banking sector (Source: Bank of Spain)
Trillion Euros
Two Phases of Global Liquidity
27
2.0
Private crossborder liabilities
(total credit core liabilties Eurosystem
LTRO
1.8
1.6
1.4
1.2
Eurosystem
Long term
refinancing
operations
1.0
0.8
0.6
Core Liabilities
to residents
0.4
0.2
Dec-11
Dec-10
Dec-09
Dec-08
Dec-07
Dec-06
Dec-05
Dec-04
Dec-03
Dec-02
Dec-01
Dec-00
Dec-99
0.0
Figure 21. Spain: funding gap of Spanish banks (Source: Bank of Spain)
Billion Euros
Two Phases of Global Liquidity
28
900
800
Private crossborder
liabilities (total
credit - core
liabilties Eurosystem
LTRO
700
600
500
400
300
Eurosystem
Long term
refinancing
operations
200
100
Mar-12
Mar-11
Mar-10
Mar-09
Mar-08
Mar-07
Mar-06
Mar-05
Mar-04
Mar-03
Mar-02
Mar-01
Mar-00
Mar-99
0
Figure 22. Spain: funding gap of Spanish banks (Source: Bank of Spain)
Two Phases of Global Liquidity
29
0.90
0.80
0.70
0.60
0.50
0.40
Non-core to core
liabilities ratio
0.30
0.20
0.10
Mar-12
Sep-11
Mar-11
Sep-10
Mar-10
Sep-09
Mar-09
Sep-08
Mar-08
Sep-07
Mar-07
Sep-06
Mar-06
Sep-05
Mar-05
Sep-04
Mar-04
Sep-03
Mar-03
Sep-02
Mar-02
Sep-01
Mar-01
Sep-00
Mar-00
Sep-99
Mar-99
0.00
Figure 23. Spain: Ratio of non-core liabilities to core liabilities of Spanish banks (Source: Bank of Spain)
Billion Euros
Two Phases of Global Liquidity
30
350
Loans and advances to
Spanish government
300
Spanish government securities
250
Securities issued by Spanish
enterprises and households
200
Loans and advances to
Spanish enterprises and
households
150
Spanish money market paper,
bonds and notes
100
Securities issued by Spanish
banks
50
2012-03
2011-05
2010-07
2009-09
2008-11
2008-01
2007-03
2006-05
2005-07
2004-09
2003-11
2003-01
2002-03
0
Loans and advances to
Spanish banks
Figure 24. Claims of German banks on Spanish counterparties (Source: Bundesbank)
Two Phases of Global Liquidity
31
Post-Crisis Phase
• Bond markets have thawed
• But credit conditions faced by SME borrowers in Europe are still tight
• Conjunction of the two explained by peculiarity of banks
• Opening channel from bond market to bank credit (e.g. covered bonds)
may improve credit conditions
Trillion dollars
Two Phases of Global Liquidity
32
9.0
8.0
Corporate
bonds
7.0
6.0
Commercial
paper
5.0
Other loans
and
advances
4.0
3.0
Bank loans
n.e.c.
2.0
1.0
2012Q3
2011Q1
2009Q3
2008Q1
2006Q3
2005Q1
2003Q3
2002Q1
2000Q3
1999Q1
1997Q3
1996Q1
1994Q3
1993Q1
1991Q3
1990Q1
0.0
Total
mortgages
Figure 25. Credit to US non-financial corporate sector (US Flow of Funds, table L102)
33
210
180
150
Millions
Two Phases of Global Liquidity
120
90
Bond
change
60
30
0
-30
Loan
change
-60
-90
-120
-150
-180
2011Q2
2009Q4
2008Q2
2006Q4
2005Q2
2003Q4
2002Q2
2000Q4
1999Q2
1997Q4
1996Q2
1994Q4
1993Q2
1991Q4
1990Q2
-210
Figure 26. Changes in outstanding corporate bonds and loans to US non-financial corporate sector. Loans
are defined as sum of mortgages, bank loans not elsewhere classified (n.e.c.) and other loans (US Flow of
Funds, table F102)
Two Phases of Global Liquidity
34
Percent of liabilities
Percentage points
18
18
Expected year-ahead defaults at t-12 (left axis)
10-year high-yield corporate bond spread at t (right axis)
16
16
14
14
12
12
10
10
8
8
6
6
4
4
2
2
0
0
1997
1999
2001
2003
2005
2007
2009
2011
Figure 27. Risk premium versus expected default probability (Source: Egon Zakrajsek, based on Gilchrist
and Zakrajsek (2012))
Two Phases of Global Liquidity
Lending
rate
35
Bank
credit
supply
Bond
credit
supply
Aggregate
credit supply
Credit
demand
Total credit
Figure 28. Bank and bond credit supply before crisis
Two Phases of Global Liquidity
36
Lending
rate
Bank
deleveraging
Credit
demand
Total credit
Figure 29. Bank and bond credit supply following deleveraging by banking sector
Two Phases of Global Liquidity
37
Lending
rate
Bond
financing
Bank
financing
Total credit
Figure 30. Bank and bond credit supply following deleveraging by banking sector
Two Phases of Global Liquidity
38
Figure 31. Evidence from UK: Cumulative gross issuance of bonds by UK private non-financial corporations
(Source: Bank of England Asset Purchase Facility Quarterly Report, 2012 Q3)
Two Phases of Global Liquidity
39
China
Trillion RMB
Loans
Securities
FDI (funding source)
Deposits
FDI (claim)
8.0
6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
-8.0
-10.0
-12.0
2001
2002
2003
2004
2005
2006
2007
2008
2009
Figure 32. China: non-financial corporate sector financial assets and liabilities (Source: China Statistical
Yearbook, Flow of Funds of Chinese Corporations)
Two Phases of Global Liquidity
40
end-user
borrowers
households
firms
equity
loans
banking
sector
outside
debt claims claim holders
firms
Figure 33. Stylized financial system before inflow of global liquidity (Source: Hattori, Shin and Takahashi
(2009))
Two Phases of Global Liquidity
41
end-user
borrowers
households
firms
equity
loans
banking
sector
deposits
outside
debt claims claim holders
claims
firms
Figure 34. Stylized financial system with non-financial corporates channeling global liquidity (Source:
Hattori, Shin and Takahashi (2009))
Two Phases of Global Liquidity
42
140
120
Government (in USD Billions)
100
Other Corporates (in USD Billions)
80
Banks and Financial Institutions (in
USD Billions)
60
40
20
Jun-12
Sep-11
Dec-10
Mar-10
Jun-09
Sep-08
Dec-07
Mar-07
Jun-06
Sep-05
Dec-04
Mar-04
Jun-03
Sep-02
Dec-01
Mar-01
0
Figure 35. China. Total USD equivalent of bonds outstanding denominated in foreign currency (FCY)
(Source: Asian Development Bank)
Two Phases of Global Liquidity
43
4,500
4,000
3,500
Govt (in USD Billions)
3,000
2,500
Corp (in USD Billions)
2,000
1,500
1,000
500
Jun-12
Dec-10
Jun-09
Dec-07
Jun-06
Dec-04
Jun-03
Dec-01
Jun-00
Dec-98
Jun-97
0
Figure 36. China. Local currency (LCY) bonds outstanding in USD (Source: Asian Development Bank)
Two Phases of Global Liquidity
44
500
450
400
350
Govt (in USD Billions)
300
Corp (in USD Billions)
250
200
150
100
50
Figure 37. China. Local currency bond issuance (per quarter) (Source: Asian Development Bank)
Jun-12
Sep-11
Dec-10
Mar-10
Jun-09
Sep-08
Dec-07
Mar-07
Jun-06
Sep-05
Dec-04
Mar-04
Jun-03
Sep-02
Dec-01
Mar-01
Jun-00
Sep-99
Dec-98
Mar-98
Jun-97
0
Two Phases of Global Liquidity
45
border
Chinese corporate
A
L
RMB
RMB
RMB
US
dollars
Hong Kong bank
A
US
dollars
L
US
dollars
RMB
RMB deposit as collateral for USD loan
Figure 38. US dollar funding of Chinese corporate via Hong Kong bank
Parent bank
or
wholesale
funding
market
Two Phases of Global Liquidity
46
100 billion RMB
Components of China's Monetary Aggregates
40
35
Coporate Demand Deposits
30
Coporate Time Deposits
25
Personal Deposits
20
15
10
5
2011.12
2011.06
2010.12
Figure 39. China: corporate and personal deposits of banking sector (Source:
monetary statistics)
2010.06
2009.12
2009.06
2008.12
2008.06
2007.12
2007.06
2006.12
2006.06
2005.12
2005.06
2004.12
2004.06
2003.12
2003.06
2002.12
2002.06
2001.12
2001.06
2000.12
2000.06
1999.12
0
People’s Bank of China
Two Phases of Global Liquidity
47
130%
120%
Corporate deposits / personal deposits
110%
100%
90%
80%
70%
2011.12
Figure 40. China: ratio of corporate to personal deposits of banking sector (Source:
China monetary statistics)
2011.06
2010.12
2010.06
2009.12
2009.06
2008.12
2008.06
2007.12
2007.06
2006.12
2006.06
2005.12
2005.06
2004.12
2004.06
2003.12
2003.06
2002.12
2002.06
2001.12
2001.06
2000.12
2000.06
1999.12
60%
People’s Bank of
Two Phases of Global Liquidity
48
M2
Coporate Time Deposits
Coporate Demand Deposits
Personal Deposits
3.0%
Monthly growth rate
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
2012.01
2011.07
2011.01
2010.07
2010.01
2009.07
2009.01
2008.07
2008.01
2007.07
2007.01
2006.07
2006.01
2005.07
2005.01
2004.07
2004.01
2003.07
2003.01
2002.07
2002.01
2001.07
2001.01
2000.07
2000.01
Figure 41. Monthly growth rates of monetary components in China, filtered through Hodrick-Prescott filter
( = 14400)
Two Phases of Global Liquidity
49
Billion HK dollars
400
300
200
Claims on non‐
bank customers
in China (F.C.)
100
0
‐100
Liabilities to
non‐bank
customers in
China (F.C.)
‐200
‐300
Jan‐2012
Apr‐2011
Jul‐2010
Oct‐2009
Jan‐2009
Apr‐2008
Jul‐2007
Oct‐2006
Jan‐2006
Apr‐2005
Jul‐2004
Oct‐2003
Jan‐2003
‐400
Figure 42. HK Banks’ Positions vis-à-vis Non-Bank Customers in Mainland China in Foreign Currencies
(Source: Hong Kong Monetary Authority)
Two Phases of Global Liquidity
Figure 43. China. Non-financial corporate cash positions
50
Two Phases of Global Liquidity
51
Commerce Industry, 2010
0
0
10
10
20
20
30
30
40
40
50
50
Commerce Industry, 2009
-2
-1
0
Ratio
cash_sc2
1
finliabs_sc2
2
-3
-2
-1
0
1
Ratio
cash_sc2
finliabs_sc2
Figure 44. China. Cash holding by non-financial corporates (source: Shin and Zhao (2012))
2
Two Phases of Global Liquidity
Figure 45. China. Panel regression with firm fixed effects (Source: Shin and Zhao (2012))
52
Two Phases of Global Liquidity
53
Insights on Current Conjuncture
• Non-banks are increasing important in driving financial conditions across
borders
• Bond markets are the main channel
• Credit conditions faced by SME borrowers in Europe are still tight
• Conjunction of the two explained by peculiarity of banks