Photographer: Simon Dawson

Peak Banking Globalization Hasn't Come and Gone, BIS Says

  • European banks are behind a pull-back in cross-border finance
  • Slowdown in financial globalization probably cyclical

Globalization's glory days aren't over. 

That's the main message of an early-release chapter from the Bank for International Settlements' annual report, and it's the first item in this week's economic research roundup. We've also outlined studies about the statistical case against right-to-carry gun laws, how U.S. investors are taking higher interest rates, and how the Fed's balance-sheet runoff will affect its remittances to the Treasury Department. Check this column each Tuesday for up-to-date economic thinking from around the globe. 

Peak financial globalization? BIS says no. 

BIS, the Basel-based central bankers' bank, isn't ready to call an end to financial globalization. Data on cross-border banking suggest that a pullback started during the global financial crisis in 2007-2009 and has set in since: cross-border claims reported by banks in more than 40 jurisdictions declined from a peak of 60 percent of global GDP in 2007 to less than 40 percent since 2013. BIS argues that those figures give a false signal, since a regional quirk is driving what looks like an aggregate trend.

"Banks headquartered in Europe accounted for more than all of the global decline – that is, these banks’ foreign claims declined by more than $9 trillion," while those of U.S. banks and banks from other advanced countries and emerging market economies grew, according to the bank's annual report. Given the European banks' circumstances, the shrinkage is better interpreted as cyclical de-leveraging than as a structural trend away from globalization, they write. 

Understanding Globalisation (Box VI.B) 
Published June 18, 2017
Available on the BIS website

Looking at gun control through statistics

States that adopted right-to-carry gun laws saw a marked increase in violent crime, according to a new analysis. The finding is important: there's a school of thought, grounded in research from the 1990s, contending that wide-spread gun ownership deters criminals from committing crimes. 

The new paper finds that right-to-carry laws led to increases in violent crime of 13 to 15 percent after 10 years. To arrive at that conclusion, the authors look at 33 states that adopted right-to-carry laws between 1981 and 2007 using a methodology that compares actual crime patterns with the likely path of crime had the law not been adopted. 

Property crime and murder also increased, though those results were not large enough to be statistically significant. While it may seem odd that murder didn't move in tandem with violent crime, the authors explain that they had less precise data on how the laws impacted murders, which are fewer and further between. States that adopted right-to-carry laws also added more police in subsequent years, and that extra crime-stopping force might have had an outsized effect on preventing murders. 

The finding "constitutes persuasive evidence that any beneficial effects from gun carrying are likely substantially outweighed by the increases in violent crime that these laws stimulate," write Stanford Law School's John Donohue and Abhay Aneja and Columbia University Department of Economic's Kyle Weber. 

Right-to-Carry Laws and Violent Crime
Published June 2017
Available on the NBER website

American investors aren't sweating higher rates

U.S. investors with more than $10,000 in investable assets haven't been affected by rising interest rates, according to a recent survey. More than seven in 10 investors say the impact is nonexistent or neutral, and the remainder are split pretty evenly between seeing a positive and a negative effect.

Most investors said they would not make any changes to their stock market holdings if interest rates continue to rise this year, though close to a quarter said they'd transfer money out of equities. The results come from the Wells Fargo/Gallup Investor and Retirement Optimism Index, and interviews were conducted between May 4 -7, before the Fed voted to raise interest rates last week. 

US Investors Taking Higher Interest Rates in Stride
Published June 16, 2017
Available on the Gallup website

Big questions for the Fed

Federal Reserve policy makers gave markets a detailed blueprint for how they'll reduce their $4.5 trillion balance sheet in an addendum to their policy decision issued last week. They've provided a handy Q&A  to clear up any questions we might still have.

It mainly reiterates what careful Fed-watchers already knew — that the Fed isn't planning outright sales, that the process will be gradual, and that it will start once rate hikes are "well underway" — and the explainer provides some useful illustrative charts that show just how slowly Fed holdings will shrink. It also discusses how balance sheet runoff might affect remittances to the Treasury. For background: the Fed earns interest on its holdings and pays all of its excess earnings back to the government, so it's big balance sheet has translated into large payments into Treasury coffers.

Payouts, which totaled $92 billion last year, should remain "robust for the next couple of years,'' according to the post, but "will most likely decline from their current elevated level, as a moderation in interest income and a rise in interest expense dampen Federal Reserve net income." 

Policy Normalization Q&As
Published June 2017
Available on the Fed website

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