After a relatively small change in total outstanding stocks in the third quarter, banks' external loans shrank by 5.4% in the fourth quarter of 2008 ($1.8 trillion at constant exchange rates), to $ 31 trillion. This was the largest reduction ever recorded in a single quarter, in at least 30 years. Claims denominated in US dollars and yen were down by 6% and 15%, respectively, and claims vis-à-vis non-banks declined by 8%, according to the Bank of International Settlements (BIS).

The fourth quarter of 2008 was a period of global financial turmoil following the collapse of US investment bank Lehman Brothers in mid-September 2008.

In the quarter, at current exchange rates, the consolidated international claims of BIS reporting banks on an immediate borrower basis contracted by $2.2 trillion, to $20.5 trillion. On an ultimate risk basis, i.e. after taking into account net risk transfers related to credit derivatives, guarantees and collateral, banks' exposures dropped by $2.8 trillion. Claims on other banks and on non-bank private sector went down by 1 trillion and $1.7 trillion, respectively. In contrast, the share of the public sector rose from 14% to 16% of total.claims. Brisk activity, predominantly in swaps and interest rate products, as well as large movements in credit derivatives led derivative contracts with positive market value to rise by almost 52%, to $6.5 trillion, vis-à-vis residents of developed economies.

Sector: Claims on non-banks and banks dropped by $903 billion and $887 billion respectively, the latter partly accounted for by a $315 billion (3%) decline in crossborder claims on banks’ related foreign offices.

Location of counterparties: Cross-border bank claims on borrowers in developed countries declined by 5% ($1,272 billion). Claims on non-banks in offshore centres fell by 14% ($217 billion), while credit to non-banks in developing countries dropped by 6% ($77 billion). Banks’ liabilities to banks in developing economies declined by 12% ($298 billion). Banks’ holdings and issues of cross-border securities contracted by 3% ($211 billion) and 7% ($232) billion, respectively.

Currencies: Banks’ cross-border claims denominated in US dollars decreased by $803 billion (6%), including 12% and 13% reductions in holdings of dollar securities issued by residents of offshore centres and developing countries respectively. Euro claims contracted by $491 billion (4%).

Foreign currency credit to residents of reporting countries decreased by $126 billion (3%), while banks’ holdings of local foreign currency securities increased by $88 billion (49%). Yen and Swiss franc claims on residents declined by $70 billion and $32 billion respectively, mainly in developed economies.

UK registered banks posted the biggest overall decline in overseas lending, with foreign assets falling by $576 billion in the quarter. Germany saw the next largest fall of £195 billion, while Switzerland cut loans by $173 billion, and Belgium reduced its banking assets by $203 billion.

Irish banks rose by $47 billion. This is related to Dublin's offshore financial centre.

BIS Q4 2008 Report

BIS Country Statistics