During the last ten years, for example, U.S. nonfinancial corporations borrowed a net amount of $ billion in the form of bonds, three times the net amount they borrowed from banks. Over this same period, these companies as a group spent $ billion more to retire stock – through buybacks and mergers – than they raised in new offerings. Accompanying these increased levels of debt market activity has been a continuous process of financial innovation. This innovation has served to unbundle different kinds of risk and, thereby, to enlarge the menu of risks that investors may choose to bear. For example, interest-rate swaps, futures and options help reconfigure various interest-rate risks. Total return swaps and creditspread options are tools for reallocating the payment risks primarily of emerging market debt. Credit-default swaps and credit-linked notes are ways to redistribute default risks. In practice, this unbundling of risk means that a broad range of financial institutions today performs the credit intermediation process, eroding the historical comparative advantage of banks in bearing credit risk. At various times, some institutions will be underwriting issues, while others will be making bridge loans, providing credit enhancements, writing derivative contracts and taking up riskier components of securities. Within the United States, the fixed-income market is today a market of some $ trillion, roughly the same size as the total equity market. Trading activity in fixed-income instruments is concentrated in Treasury securities.
Boris Vujčić: Macroeconomic developments and structural issues in CEE countries Speech by Mr Boris Vujčić, Governor of the Croatian National Bank, at the Roundtable on Macroeconomic Developments of the 16+1 Economies, Magyar Nemzeti Bank (the central bank of Hungary), Budapest, 9 November 2018. * * * Accompanying slides of the presentation. Economic expansion in the CEE region can be expected to continue in the near term supported by still favourable cyclical conditions. However, in many countries pace of growth might moderate, partly due to supply side constraints and maturing business cycles. Potential growth estimates indicate that in all countries output gaps are positive or have been closed, and unemployment rates are close or below pre-crisis levels, pushing-up the wage growth. While such a positive outlook for future growth is somewhat disturbed by rising risks to the global economy, such as escalation of trade tensions or tightening of financial conditions, CEE countries seem to be in a generally good shape to withstand the impact of negative shocks. Current account positions have improved and in many countries turned into surplus, while international liquidity positions are ample. Also, economic recovery coupled with efforts to push through fiscal adjustment programs led to improvement of general government balance and public debt was put on a declining path. Furthermore, financial systems in most countries remain robust and resilient, as attested by withstanding the shocks emanating from the global financial crisis and the European sovereign debt crisis.