Record fall in cross-border claims

Cross-border claims at the major banks fell a record 5.4% in the last three months of 2008, according to figures released today by the Bank for International Settlements (BIS).

The BIS said external claims fell to $31 trillion in the quarter, with US dollar claims down 6% and yen claims down 5%. On an ultimate risk basis (after risk transfers involved in credit derivatives trades, for example) claims fell from $29 trillion to $26.1 trillion. Lending to developing nations fell for the first time since the start of 2006, down $281 billion, as the credit crisis - which initially affected major banks in developed economies - turned into a global economic crisis.

The $887 billion fall in cross-border claims on banks included a $315 billion fall in claims by banks on their own offices in other countries - highlighting the difficulty, raised recently by several regulators, of ensuring adequate capital levels in multinational banks. However, continuing activity in the swaps and interest rate markets, as well as large movements in credit spreads, meant the volume of remaining derivatives contracts between banks and developed-world investors rose by 52% to $6.5 trillion.

In both absolute and percentage terms, the biggest fall by instrument was in loans - total loan claims fell $1.7 trillion to $22.5 trillion, with securities and other stocks falling far less sharply.

The Bank of England said last month UK bank foreign claims had fallen $724 billion over the same period to $3.68 billion on an ultimate risk basis, driven mainly by a fall in claims on developed countries.

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