Banks continued to shrink their balance sheets in the first quarter, albeit at a slower rate, according the latest quarterly review from the Bank for International Settlements.

The BIS finds that banks registered an US$812 billion fall in their interbank positions in the first quarter of 2009 compared to the fourth quarter of 2008 However, it notes that the decrease in international credit to non-banks, at US$258 billion, was only one fourth that seen in the previous quarter.

It also observes that banks trimmed their international credit to emerging markets, but their local lending from offices in emerging market host countries remained stable.

Continued government support of financial markets led to an increase in the issuance of international debt securities in the second quarter of 2009, the BIS reports, as net issuance rose by 25% to US$837 billion. The increase was mostly accounted for by bonds and notes issued by financial institutions, particularly in the euro area, and public sector borrowers, it says. By contrast, money market borrowing stagnated further.

Activity on the international derivatives exchanges also rebounded in the second quarter, the BIS says, as total turnover increased by 16% to US$426 trillion, mainly reflecting higher activity in futures and options on short-term interest rates. Additionally, higher stock prices drove increased turnover of equity index derivatives measured by notional amounts, but the number of contracts traded went up only slightly.

IE