Funding Slowdown May Show Turning Point in Liquidity, BIS Says

A decline in international financing may signal the beginning of a tightening in global credit markets, according to the Bank for International Settlements.

Outstanding debt securities fell the most in three years, with repayments surpassing new issuance by $47 billion in the fourth quarter, the Basel, Switzerland-based institution said in a report published Sunday that cited drops in a raft of measures of international financing. The decline in outstanding debt was driven by weak issuance by financial companies in developed economies.

The slowdown may indicate financing is drying up, according to the report, which highlighted the “uneasy calm” in financial markets in late 2015 amid the prospect of higher Federal Reserve interest rates, slowing demand from China and plunging commodity prices. The deterioration of global growth prospects has rattled markets from the start of this year.

“These developments in international bank and securities credit are significant because they may signal a turning point in global liquidity,” BIS said in the report. If tighter liquidity conditions persist, they “may raise stability risks in some countries, especially those where other indicators already point to a heightened risk of financial stress.”

Dollar borrowing by non-banks in emerging market economies in September was unchanged from June at $3.3 trillion, the first time it hasn’t increased since 2009, according to the report. 

Dollar-denominated credit to non-bank borrowers outside the U.S. also remained flat. Euro-denominated credit to non-financial borrowers from outside the region was also little changed at $2.2 trillion, according to the report.

International bank claims contracted 0.8 percent in the third quarter compared with a year earlier. 

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