The March 2022 BIS Quarterly Review showcases research that highlights the key issue of the funding sources of financial intermediaries and how this affects the volatility of lending by both banks and non-banks.
Non-banks play an important role in syndicated lending to non-financial firms, as authors Iñaki Aldasoro, Sebastian Doerr (BIS) and Haonan Zhou (Princeton) show in their special feature. They find that lending by non-banks is more concentrated, fluctuates more with risk conditions and – being riskier – attracts higher spreads than lending by banks. One aspect of this volatility is that non-banks curtail lending to foreign borrowers more than banks do at times of domestic financial stress, thereby magnifying the transmission of shocks across countries.
Another special feature examines a new data set on global banks’ foreign branches and subsidiaries and their distinct balance sheet structures. Authors Iñaki Aldasoro, John Caparusso (BIS) and Yingyuan Chen (IMF) show that branches, which tend to be heavily involved in international corporate banking, have grown relative to locally focused subsidiaries. Branches have business models that can be riskier for host countries due to their reliance on wholesale funding, and authorities, particularly in advanced economies, have tightened constraints on them, especially after the global financial crisis.