Resurgent market worries have increased financial market volatility and caused global banks to pull back on cross-border lending, according to the latest data from the Bank for International Settlements.

The BIS reports that, in the fourth quarter of 2011, cross-border lending by internationally active banks fell by the largest amount since the height of the financial crisis at the end of 2008, following the collapse of Lehman Brothers.

It says that the decline was worldwide, although it was driven by the deleveraging of banks headquartered in the euro area. Cross-border lending to non-banks also fell, but the drop in claims on banks was sharper, it says.

Cross-border claims on both banks and non-banks in developed economies shrank by $630 billion, it reports, with Euro area banks accounting for most of this decline. Meanwhile, claims on emerging market economies fell by $75 billion, or 2.4%, it adds, with the decline concentrated on banks in China in particular. Among all developing countries, only those in Latin America and the Caribbean saw an increase in cross-border claims, it notes.

Additionally, the BIS reports that the notional amount of outstanding over-the-counter derivatives fell by 8% in the second half of 2011, while a rise in price volatility drove up the market value by 40%. Gross credit exposures rose 32%, it says. And, the BIS estimates that credit exposures between counterparties in the bilateral OTC derivatives market increased slightly, to at least $2.1 trillion.

The bank notes that market sentiment improved substantially after the ECB’s longer-term refinancing operations late last year. But, by late May of this year, “that optimism had given way to doubts about European economic growth, the financial health of euro area sovereigns and banks, the impact of fiscal consolidation on growth, and political stability inside the euro area. Together with signs of greater fragility in U.S. and Chinese growth, all this unsettled investors and stoked global financial market volatility.”