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The COVID19 pandemic sparked a severe global economic crisis. Policymakers hav
e taken aggressive, drastic steps to protect public health, contain immediate econ
omic harm and protect the financial system. For the time being the nearterm fina
ncial stability threats have been constrained, the unprecedented quantitative easi
ng and significant fiscal support.The dramatic action stabilized global financial mar
kets, improved investor confidence, and sustained the flow of credit. Critical, deci
sive policy support has helped avoid the disruptive macrofinancial feedback loops
that were so prevalent and pernicious in the financial crisis more than a decade ag
o.The financial crisis revealed limitations and deficiencies in the governance of fin
ancial institutions on both sides of the Atlantic. Policy responses have adopted leg
islation based on greater risktaking oversight; stricter standards for capital and liq
uidity; greater accountability on remuneration packages paid to directors and seni
or management; and new guidelines on the structure of such packages. Banks hav
e also been forced to raise resources, keep more liquidity and impose more.
The relationship of private and official factors influences the overall ease of financ
ing of the economy. For example, financial institutions, through their trading activi
ties, provide securities markets with market liquidity and provide borrowers with
financial liquidity through their lending activities.The conditions under which thes
e intermediaries will finance themselves depend on the willingness of other mark
et participants to engage with them. These interactions would be influenced by pr
udential and macroeconomic policies, including the conditions under which centr
al banks provide financing to the financial system (Eickmeier et al (2013)).
The unpaid sum of credit demonstrates the degree to which the ease of funding h
as contributed to a rise in exposures. In other words, lending to privatesector inve
stors represents the result of financial intermediation on global markets. Unusuall
y rapid increases in unpaid loans are related to the buildup of vulnerabilities, with
possible consequences for financial stability.
Most of this credit, but not all of it is issued by banks, so the BIS indicators concen
trate primarily on bank credit. The international credit portion, in the form of cros
sborder loans and local loans denominated in foreign currencies, is of particular in
terest for the assessment of global liquidity.
This is because the foreign dimension also provides a marginal source of funding i
n the runup to the financial crisis. Although the international component is often s
mall compared to total credit, shifts in this component can intensify domestic dev
elopments and are strongly associated with booms and busts in global financial co
nditions.
Any evaluation of global liquidity conditions demands that global credit indicators
be put into context. Moreover, the informativeness of indicators is evolving over
time, suggesting that a versatile and multifaceted approach is required when eval
uating global liquidity conditions (Committee on the Global Financial System (201
1)).A selection of supplementary price and quantity metrics can be used to captur
e additional basic aspects of global liquidity that are important to financial stabilit
y. These include financing conditions initiatives in key capital markets and incentiv
es for positiontaking across market segments. These metrics tend to include risk a
version proxies, which are a significant driver of leverage and the ability of private
investors to provide financing.