• Data< (XLSX, 68 kb, last updated October 2013)

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Conceptual background

The term global liquidity< is used here to mean the ease of financing in global financial markets. Defined this way, global liquidity depends primarily on the actions of private investors and financial institutions.

Financial institutions provide market liquidity to securities markets through their trading activities, and provide funding liquidity to borrowers through their lending activities. The terms on which these intermediaries can fund themselves, in turn, depend on the willingness of other market participants to interact with them. Macroeconomic and prudential policies are another factor, including the terms and conditions on which central banks provide funding.

The interaction between these private and official factors determines the economy's overall ease of financing. This, in turn, influences the build-up of financial system vulnerabilities in the form of asset price inflation, leverage, or maturity or funding mismatches. Indicators will tend to measure these "footprints" of liquidity rather than global liquidity itself.

On this basis, and seen from a financial stability perspective, global credit is among the key indicators of global liquidity. The stock of credit outstanding shows how far ease of financing has led to the build-up of exposures. In other words, global private sector credit reflects the outcome of financial intermediation activity in global markets. Changes in these stocks are closely associated with the build-up of vulnerabilities, with potential implications for financial stability. These flows comprise both a domestic and an international element.

Of particular interest for the assessment of global liquidity is the international component of credit (cross-border lending to non-residents or lending in foreign currency). It is this cross-border element that regularly provides the marginal source of financing in the run-up to crises. Although often small relative to the total stock of credit, swings in these international components can amplify domestic trends and are highly correlated with booms and busts in global financial conditions.

Any assessment of global liquidity conditions requires that measures of global credit are put into perspective. Much of this credit, although not all, is provided by banks, so that the indicators focus on this component. A range of supplementary price and quantity indicators can be used to capture additional specific aspects of global liquidity that are relevant for financial stability. These include measures of financing conditions in key financial markets and incentives for position-taking across market segments. Key indicators in this regard are proxies for risk appetite, which is a major driver of leverage and the willingness of private investors to provide funding.

Together with measures of global credit, these indicators can help identify unsustainable lending booms or undue risk-taking in specific markets or globally. The information content of these indicators changes over time, implying that a flexible approach is needed when assessing global liquidity conditions.

Links to selected BIS publications on global liquidity issues:

• Borio, C (2010): "Ten propositions about liquidity crises", CESifo Economic Studies, vol. 56(1), pp 70-95. Also available as BIS Working Paper, no 293
  <, November 2009.
• Borio, C, R McCauley and P McGuire (2011): "Global credit and domestic credit booms<", BIS Quarterly Review, September, pp 43-57.
• Caruana, J (2012): "Assessing global liquidity from a financial stability perspective<", speech at the 48th SEACEN Governors' Conference and High-Level Seminar, Ulaanbaatar, November.
• Caruana, J (2013): "Global liquidity: where do we stand?<", speech at the Bank of Korea Annual Conference, Seoul, June.
• Committee on the Global Financial System (2011): "Global liquidity - concepts, measurement and policy implications<", CGFS Papers, no 45, December.
• Domanski, D, I Fender and P McGuire (2011): "Assessing global liquidity<", BIS Quarterly Review, December, pp 57-71.
• Eickmeier, S, L Gambacorta and B Hofmann (2013): "Understanding global liquidity<", BIS Working Paper, no 402, February.