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BF Symposium-session2-Shin-Slides

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Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks
VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html
SLIDES: https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf

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BF Symposium-session2-Shin-Slides

  1. 1. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Changing Face of Financial Intermediation and Lessons for Central Banks Hyun Song Shin* Bank for International Settlements Banque de France Annual Conference 7 November 2014 * Views expressed are my own, not necessarily those of the BIS. VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  2. 2. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  3. 3. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Direct and intermediated finance: what are the tradeoffs?  What determines the supply of bank finance?  What determines the supply of market finance?  What role for the monetary environment? VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 3 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  4. 4. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Direct and intermediated finance: two phases  Banking sector-led credit growth (2003 – 2008)  Procyclical leverage  Wholesale funding as marginal source of finance  Driven by combination of - steep yield curve - certain path of short-term rate  Bond market-led credit growth (2010 – )  Long-term investors as creditors  Focus on corporate borrowers, especially EME corporates  Driven by low long rates and flat yield curve VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 4 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  5. 5. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks US Treasury 10 year and 3 month rates 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 10 year 3 month Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Percent VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 5 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  6. 6. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Term premium used to be determined by short rate; but not any more 5.0 4.0 3.0 2.0 1.0 0.0 -1.0 -2.0 -3.0 -4.0 -5.0 -4.0 -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 12 month change in 3 month rate (%) 12 month change in term spread (%) Jan 1985 - June 2010 July 2010 - Dec 2012 VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 6 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  7. 7. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Year-on-year rate of growth in international bank claims In per cent VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 7 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  8. 8. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks McCauley, McGuire and Sushko (2014): Yield curve flattening leads to preference for bond issuance VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 8 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  9. 9. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Direct and Intermediated Finance Banks Ultimate Creditors Ultimate Borrowers Intermediated Credit Claim Directly granted credit VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 9 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  10. 10. Bond market as a “spare tire”: Evidence from the US during the crisis 1 0
  11. 11. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Bond market as a spare tire: credit to the US non-financial corporate business sector (US Flow of funds, table L102) 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2012Q3 2011Q1 2009Q3 2008Q1 2006Q3 2005Q1 2003Q3 2002Q1 2000Q3 1999Q1 1997Q3 1996Q1 1994Q3 1993Q1 1991Q3 1990Q1 Trillion dollars Corporate bonds Commercial paper Other loans and advances Bank loans n.e.c. Total mortgages VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 10 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  12. 12. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Bond market as a spare tire: credit to the US non-financial corporate business sector (quarterly changes) 1990Q2 1991Q4 1993Q2 1994Q4 1996Q2 1997Q4 1999Q2 2000Q4 2002Q2 2003Q4 2005Q2 2006Q4 2008Q2 2009Q4 2011Q2 210 180 150 120 90 60 30 0 -30 -60 -90 -120 -150 -180 -210 Millions Bond change Loan change VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 12 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  13. 13. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Limits of spare tire: credit to non-financial non-corporate business sector (US flow of funds, table L103) 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2012Q3 2011Q1 2009Q3 2008Q1 2006Q3 2005Q1 2003Q3 2002Q1 2000Q3 1999Q1 1997Q3 1996Q1 1994Q3 1993Q1 1991Q3 1990Q1 Non-corporate business sector total borrowing (trillion dollars) other loans and advances depository institution loans n.e.c. commercial mortgages multifamily residential mortgages construction loans on one-to-four family homes home mortgages VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 13 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  14. 14. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Spare tire comes at a price: risk premium of bond finance (Gilchrist and Zakrajscek (AER 2012)) 16 14 10 8 6 4 2 VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 6 4 2 8 6 4 2 0 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf 0 1997 1999 2001 2003 2005 2007 2009 2011 0 Percent of liabili ties Percentage points 8 18 12 Expected y ear-ahead def aults at t-12 (lef t axis) 10-y ear high-y ield corporate bond spread at t (right axis) 14
  15. 15. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Bank and bond financing (1): before bank deleveraging Aggregate credit supply Credit demand Total credit Lending rate Bank credit supply Bond credit supply VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 15 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  16. 16. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Bank and bond financing (2): bank deleveraging shock Credit demand Total credit Lending rate Bank deleveraging VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 16 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  17. 17. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Bank and bond financing (3): bank and bond shares Total credit Lending rate Bond financing Bank financing VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 17 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  18. 18. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Bond financing during the crisis  Bond financing played the role of “spare tire” in the US during the crisis  Corporate borrowers with access to bond market were able to substitute bank finance with bond finance  However, they had to pay for the privilege  For unlisted firms, even this privilege was not available  Bond financing during the crisis was driven by the negative supply shock to bank financing  Borrowers were “driven into” the bond market  Increased demand for bond financing manifests itself as higher bond spreads VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 18 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  19. 19. Even as spreads fall, issuance accelerates Source: Bank of England 19 What happened after 2012? An example from non-financial corporate financing in UK
  20. 20. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Bond financing in the boom years (2012 – )  The boom in bond financing after the crisis was accompanied by low and falling spreads, not high spreads  Growth in bond finance has been led by increased supply of bond finance  Search for yield with low and flat yield curve  Switch to fixed income assets of long-term investors  Focus shifts from banks to asset managers VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 20 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  21. 21. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks McCauley, McGuire and Sushko (2014) again: yield curve flattening leads to preference for bond issuance VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 20 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  22. 22. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Annual gross issuance of international debt securities by EM non-bank corporations: residence basis Emerging market economies1 (weighted average) Maturity in # years $ 152 bn 2000 2002 2004 2006 2008 2010 2012 2014 Year 12 10 8 6 4 1 Bulgaria, Brazil, Chile, China, Colombia, Czech Republic, Estonia, Hong Kong SAR, Hungary, Indonesia, India, Iceland, Korea, Lithuania, Latvia, Mexico, Malaysia, Peru, Philippines, Poland, Romania, Russia, Singapore, Slovenia, Thailand, Turkey, Venezuela and South Africa. Sources: Dealogic; Euroclear; Thomson Reuters; Xtrakter; BIS. VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 22 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  23. 23. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Annual gross issuance of international debt securities by EM non-bank corporations: nationality basis Emerging market economies1 (weighted average) Maturity in # years 2006 Year 12 10 8 $ 265 bn 6 2000 2002 2004 2008 2010 2012 2014 1 Bulgaria, Brazil, Chile, China, Colombia, Czech Republic, Estonia, Hong Kong SAR, Hungary, Indonesia, India, Iceland, Korea, Lithuania, Latvia, Mexico, Malaysia, Peru, Philippines, Poland, Romania, Russia, Singapore, Slovenia, Thailand, Turkey, Venezuela and South Africa. Sources: Dealogic; Euroclear; Thomson Reuters; Xtrakter; BIS. VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 23 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  24. 24. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Traditional boundaries … … are not sufficient in understanding the second phase of global liquidity Bank A L Border A L Local currency Local currency Local currency US dollars Non-financial corporation International capital market VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 24 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  25. 25. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Amounts outstanding of international debt securities of EM non-bank corporations at end-June 2014 Emerging market economies1 (weighted average) USD bn Nationality Residence 1,000 750 500 250 0 1 Bulgaria, Brazil, Chile, China, Colombia, Czech Republic, Estonia, Hong Kong SAR, Hungary, Indonesia, India, Iceland, Korea, Lithuania, Latvia, Mexico, Malaysia, Peru, Philippines, Poland, Romania, Russia, Singapore, Slovenia, Thailand, Turkey, Venezuela and South Africa. Sources: Dealogic; Euroclear; Thomson Reuters; Xtrakter; BIS. VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 25 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  26. 26. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Projected redemptions on international debt securities of EM non-bank corporations Emerging market economies, in billions of US dollars Nationality basis Residence basis VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 26 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  27. 27. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Longer maturity of outstanding debt securities  Maturity of debt securities has been increasing  Average maturity of outstanding EME non-bank corporate international debt securities now exceeds 8 years  Longer maturities have two effects  Mitigates roll-over risk for borrowers  But only at expense of increased duration risk for investors  Longer duration may exacerbate potential for non-linear market disruptions due to flight by investors  Possibility of perverse impact of increased maturity on roll-over risk if non-linear disruptions shut down dollar bond market for extended period VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 27 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  28. 28. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Projected redemptions of securities of EM non-bank corporations: by nationality basis Emerging market economies1 (weighted average) USD bn 600 450 300 150 0 16 18 20 22 24 Issued on any market 26 28 30 International debt securities 1 Bulgaria, Brazil, Chile, China, Colombia, Czech Republic, Estonia, Hong Kong SAR, Hungary, Indonesia, India, Iceland, Korea, Lithuania, Latvia, Mexico, Malaysia, Peru, Philippines, Poland, Romania, Russia, Singapore, Slovenia, Thailand, Turkey, Venezuela and South Africa. Sources: Dealogic; Euroclear; Thomson Reuters; Xtrakter; BIS. VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 28 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  29. 29. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Yields of local EM government bonds and the EM exchange rates Five-year govt bond yields Volatility of yields The exchange rate 0.045 0.030 0.015 0.000 2010 2011 2012 2013 2014 The black vertical line corresponds to 1 May 2013 (FOMC statement changing the wording on asset purchases). Countries included: Brazil, India, Indonesia, Malaysia, Mexico, the Philippines, Poland, South Africa and Turkey. VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 29 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  30. 30. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Elements in possible distress loop 1. Steepening of local currency yield curve 2. Currency depreciation, corporate distress, freeze in corporate CAPEX, slowdown in growth 3. Runs of wholesale corporate deposits from domestic banking sector 4. Asset managers cut back positions in EME corporate bonds citing slower growth in EMEs 5. Back to Step 1, and repeat... VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 30 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  31. 31. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Bank bond issuance in Europe VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 30 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  32. 32. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Annual gross issuance and average maturity (euro area resident banks): long-term securities issued on any market Euro area aggregate Maturity in # years $1782 bn 2001 2003 2005 2009 2011 2013 2015 2007 Year 5.5 5.0 4.5 4.0 3.5 3.0 2.5 Source: Dealogic. VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 32 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  33. 33. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Projected redemptions at end-June 2014 (euro area resident banks): long-term securities issued on any market Euro area aggregate USD bn 600 400 200 0 14 15 16 17 18 19 20 21 22 Year 23 24 25 Currency decomposition: EUR USD Source: Dealogic. Other VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 33 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  34. 34. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Annual future redemptions at end-June 2014 (euro area resident banks): long-term securities issued on any market Spain USD bn 14 15 16 17 18 19 20 21 22 Year 23 24 25 Currency decomposition: EUR USD Source: Dealogic. Other 80 60 40 20 0 VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 34 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  35. 35. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Annual future redemptions at end-June 2014 (euro area resident banks): long-term securities issued on any market France USD bn 100 80 60 40 20 0 14 15 16 17 18 19 20 21 22 Year 23 24 25 Currency decomposition: EUR USD Source: Dealogic. Other VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 35 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  36. 36. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Annual future redemptions at end-June 2014 (euro area resident banks): long-term securities issued on any market USD bn 80 60 40 20 0 Italy 14 15 16 17 18 19 20 21 22 Year 23 24 25 Currency decomposition: EUR USD Source: Dealogic. Other VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 36 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  37. 37. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Annual future redemptions at end-June 2014 (euro area resident banks): long-term securities issued on any market Netherlands USD bn 60 40 20 0 14 15 16 17 18 19 20 Year 21 22 23 24 25 Currency decomposition: EUR USD Source: Dealogic. Other VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 37 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  38. 38. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Liability categories of the euro area credit institutions Source: ECB. USD bn VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 38 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  39. 39. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Liability categories of the euro area credit institutions Source: ECB. USD bn VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 39 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  40. 40. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks “Leverage-like” behaviour without leverage  Relative performance evaluation  Ranking influences asset gathering ability “The real business of money management is not managing money, it is getting money to manage” [WSJ 16/11/95]  Selling volatility through writing straddles and then hedging price moves with delta hedging  Marking to market with thin secondary market  Risk limits and mandates on minimum credit quality  What scope for feedback loop with real economy?  What scope for interactions with other regulatory/accounting restrictions in place for governance motives? VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 40 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  41. 41. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Leverage is not the only source of market disruptions  Our understanding of crisis propagation is heavily influenced by experience of 2008 crisis  2008 crisis was made more potent by leverage  However, it does not follow that future bouts of market disruptions must follow the same mechanism as the past  Long-term investors may be subject to forces that lead to actions that are similar to leveraged players  Risk mitigation or hedging techniques  Incentives that arise from relative performance evaluation  All these mechanisms are sharper when prices are more sensitive to shifts in sentiment VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 40 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  42. 42. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Unfamiliar problems  Asset managers (not banks) are at the heart of transmission mechanism in the Second Phase of Global Liquidity  Textbooks say long-term investors are benign, not a force for destabilization  How do we adjust to the new world? VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html 41 https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  43. 43. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf
  44. 44. Hyun Song Shin - BIS, Banque de France, Nov 2014 - Changing Face of Financial Intermediation and Lessons for Central Banks Ambassador Young-mok (“Kpop”) Kim fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/ symposium-session2-shin-slides.pdf http://youtu.be/55DjXmOLjKA https://www.banque-france. 스피카 - 블루레인 VIDEO: https://www.banque-france.fr/en/eurosystem-international/international-symposium.html https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/La_Banque_de_France/symposium-session2-shin-slides.pdf

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