Derivatives valuations surged in the second quarter, driving cross-border claims higher, according to new data from the Bank for International Settlements (BIS).
The global group of central banks reported that international banks’ cross-border claims rose by US$782 billion in the second quarter, driven by rising derivatives valuations (US$515 billion). New credit rose by a modest US$100 billion.
The rise in the market value of derivatives came amid uncertainty and volatility, the BIS noted, as Russia’s invasion of Ukraine and “changing expectations about the future path of monetary policy in major currencies led to sharp movements in the prices of financial instruments.”
At the same time, the US$100 billion growth in cross-border bank credit (bank loans plus holdings of debt securities) was “driven by greater interbank positions, mainly denominated in euros and yen.”
The BIS reported that banks in most countries “continued to reduce cross-border credit to Russia, but some reported a surge in liabilities to Russia.”
In particular, a US$74-billion increase in liabilities to Russia “was the largest on record,” the report said, “with the bulk accounted for by liabilities to the Central Bank of the Russian Federation following western sanctions.”
Looking ahead, the BIS said that high inflation and rising interest rates in many jurisdictions may have “a significant impact” on foreign currency credit, including further weakness in dollar-denominated credit.