Since then, ETFs have been the recent focus of much international attention, including at the BIS, the FSB and the IMF (see  10  BIS central bankers’ speeches  Chart 15 Global ETF assets under management $ billion 1600 1400 1200 1000 800 600 400 200 0 1999  2001  2003  2005  2007  2009 2011(a)  Source: Blackrock Global ETF Research and Implementations Strategy Team. (a) Data to end-May 2011  Take for example synthetic ETFs provided by asset management arms of banks. These ETFs replicate an index return using derivatives but without necessarily physically purchasing the underlying assets. Synthetic ETF providers (typically banks) might have an incentive to collateralise the total return swap with illiquid collateral that is expensive to fund elsewhere in the market. If the swap counterparty defaults on its leg of the transaction, the ETF (and hence the end investor) would be left holding this collateral, which might have very different liquidity and credit characteristics to the securities it originally planned to invest in. In particular, if the investor unwittingly takes on collateral whose value is highly correlated with the ETF provider (i.e. if there is so-called wrong way risk), then the collateral is likely to have relatively little value in the event of default. Some of these issues are discussed in the June Financial Stability Report. The examples I have cited above involve fundamentally good financial products which should improve economic efficiency and hence the welfare of society as a whole.
Indeed, recent MI has suggested that there has been some direct lending  9  And although the aggregate US corporate sector cash position is strong, it is likely to mask significant heterogeneity in the distribution of firms, with a disproportionate share of the cash held by the largest investment grade businesses. 8  BIS central bankers’ speeches  activity to mid-sized corporates in the UK by non-bank institutions such as dedicated loan, private equity and pension funds (although the absolute amounts are still very small). Chart 13  Chart 14  Issuance of sub-investment grade corporate debt by region(a)(b)  Corporate bond valuation measure(a)(b)  Sources: Dealogic and Bank calculations. (a) Emerging economies includes Africa, Caribbean, Indian subcontinent, Latin America, Middle East, North Asia and South East Asia. “Other” includes Australasia and Japan. Includes issuance in all currencies. (b) 2011 data are to 3 June 2011  Sources: Bank of America Merrill Lynch, Bloomberg, Thomson Reuters Datastream and Bank calculations. (a) Shows the difference between actual and estimated equilibrium spreads as a percentage. Positive numbers represent overvaluation, negative numbers undervaluation. (b) Equilibrium corporate bond spreads are defined as the total estimated credit component plus a five-year rolling average of the illiquidity premia. Full details of the approach used for the decomposition of corporate bond spreads can be found in Churm, R and Panigirtzoglou, N (2005), “Decomposing credit spreads”, Bank of England Working Paper no. 253.