Rising market volatility and economic uncertainty drove an increase in banks’ derivatives positions in the third quarter of 2022, according to new data from the Bank for International Settlements (BIS).
The global group of central banks reported that banks’ cross-border claims — which are primarily made up of loans, debt securities and derivatives — grew by $1.1 trillion (all figures in U.S. dollars) in the third quarter, pushing the year-over-year growth rate to 10%.
“Derivatives drove this increase,” the BIS said in its report, noting that loans and debt securities holdings only accounted for $169 billion of the increase, as loans increased by $197 billion and debt holdings dropped by $28 billion.
“The market value of banks’ derivatives positions continued to swell in Q3 2022 against a backdrop of elevated market volatility and changing expectations about inflation,” the report said, noting that the year-over-year growth rate of cross-border derivatives claims surpassed 35% in Q3.
The provision of cross-border credit to advanced economies continued to grow in the third quarter, the BIS reported, but credit to emerging market and developing economies fell, led by China and Hong Kong.
“Both economies struggled amid Covid-19-related shutdowns and other restrictive measures affecting business activity,” the report said.
In particular, the provision of credit denominated in U.S. dollars declined by $78 billion in the third quarter, against “a backdrop of higher funding costs and persistent dollar strength,” the report said.
However, this weakness was partly offset by the continued provision of credit in other currencies, which grew by $47 billion over the quarter.
Additionally, it noted that the debt securities denominated in U.S. dollars issued by emerging markets declined for the first time since the global financial crisis of 2008–2009, dropping by $11 billion in the quarter.