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Amid weaker credit conditions and heightened market volatility, global banking activity declined in the fourth quarter of 2022, the Bank for International Settlements (BIS) reported.

Cross-border claims fell by $1.4 trillion (all figures in U.S. dollars) in the final quarter of 2022, which slowed the year-over-year growth rate to 6%.

“Both lower bank credit (loans and holdings of debt securities) and a drop in the market value of banks’ derivatives and other residual instruments contributed to the decline,” the BIS said.

In particular, cross-border bank credit fell by $749 billion, as Euro-denominated credit declined by $231 billion, and bank credit to emerging market economies declined by $179 billion due to weaker dollar lending.

“Foreign currency credit denominated in U.S. dollars continued to fall while that in euros and yen expanded,” the BIS reported.

Dollar credit to non-banks outside the U.S. fell by $257 billion in the fourth quarter, and was down 4% year over year, which marked the largest drop since the financial crisis, it noted.

“The rapid pace of U.S. monetary policy tightening during 2022 led to an exceptionally strong dollar going into the fourth quarter,” the BIS said, noting that the U.S. dollar was at its highest level since the 1980s going into the fourth quarter, “making it expensive relative to other major currencies and depressing dollar-denominated foreign currency credit.”

The market value of derivatives also dropped by $718 billion in the fourth quarter, it said, “following three quarterly increases amid elevated market volatility and changing policy rates.”