The global capital The global capital market: Performance & market: Performance &

policy problemspolicy problems

International capital International capital marketmarket

• Definition: the market in which residentsresidents of different countries trade assetsassets.

• market participants and facilities are the same as the foreign exchange market.

Three points to be discussed

1. how has the global financial network enhanced countries’ gains from trade?

2. what caused the rapid growth in international financial activity?

3. how can policy makers minimize problems raised by a worldwide capital market without reducing the benefits it provides?

商品与劳务商品与劳务 商品与劳务商品与劳务

资产资产 资产资产

Three types of international transaction

①

②

③

本国本国 外国外国

传统国际贸易

时间内的贸易

纯金融交易

intertemporal trade

Portfolio diversification as a motive Portfolio diversification as a motive for international asset tradefor international asset trade

• International trade in assets can make both parties to the trade better off by allowing them to reduce the riskiness of the return on their wealth. →portfolio diversificationportfolio diversification

• Don’t put all your eggs in one basketsDon’t put all your eggs in one baskets. 风水轮流转

•A major function of the A major function of the international capital international capital market is to make asset market is to make asset portfolios diversification portfolios diversification possible!possible!

International assets: Debt vs. Equity

• Debt instrumentsDebt instruments: Bond and banks deposits since they specify that the issuer of the instrument must repay a fixed value (the sum of principal plus interest) regardless of economic circumstances.

• Equity instrumentsEquity instruments: a share of stock, it is a claim to a firm’s profits, rather than a fixed payment, and its payoff will vary according to circumstance.

Structure of the international capital market

1. Commercial banks2. Corporations

3. Nonbank financial institutions

4. Central banks and other government agencies

Growth of the international capital market

• The scale of transactions in the international capital market has grown more quickly than quickly than world GDPworld GDP since the early 1970s.

• An important reason for that development is related to exchange rate systems. A country that fixes its currency’s exchange rate while fixes its currency’s exchange rate while allowing international capital movementsallowing international capital movements gives up control over domestic monetary policy.

TrilemmaTrilemma for policy regimes

1. Fixed exchange rate

2. Monetary policy oriented toward domestic goals

3. Freedom of international capital movements

To be extended in the last part of this course.

Offshore banking & offshore currency trading

• Offshore bankingOffshore banking: the business that banks’ foreign offices conduct outside of their home countries.

Offshore currency

• The growth of offshore currencyoffshore currency trading has gone hand in hand with that of offshore bankingoffshore banking . An offshore deposit is simply a bank deposit denominated in a currency other than that of the country in which the bank resides—for example, yen deposits in a London bank or French franc deposits in Zurich. Many of the deposits traded in the foreign exchange market are offshore deposits.

EurocurrencyEurocurrency & EurodollarEurodollar

• Offshore currency deposits are usually referred to as EurocurrenciesEurocurrencies, something of a misnomer since much Eurocurrency trading occurs in such non-European centers as Singapore and Hong Kong. Dollar deposits located outside the United States are called Eurodollars Eurodollars.

• See the Chinese version:

EurobankEurobank• Banks that accept deposits denominated in

Eurocurrencies (including Eurodollars) are called Eurobanks. The advent of the new European currency, the euro, has made this terminology even more confusing!

Banking doubled trade!Banking doubled trade!

• 1964—1985: the growth rate of international trade 12.4% per year;

• the growth rate of international banking transactions 26% per year.

Factors for explanation

1. the banks’ desire to escape domestic government regulations on financial activity.

2. the desire by some depositors to hold currencies outside the jurisdictions of the countries that issue them.

How big is the Eurocurrency market?

• In the mid-1990s, the size of the Eurocurrency market stood at around $8$8 trillion.

• Roughly 45%45% of the Eurocurrency market is dollar-denominated.

How Eurocurrencies are created

• The typical Eurocurrency deposit is a non-non-negotiable time deposit with a negotiable time deposit with a fixed termfixed term to maturity ranging from overnight to five years.

Attractiveness of Eurocurrency’s interest

American

Sample in page 651—653

German companyBMW

sold a car

CitibankCitibank

pays with pays with check $ 40000check $ 40000

购买美国国库券？

购买美国存款证？

购买欧洲美元存款英国银行 Barclays

Barclays Bank, LondonBarclays Bank, London

Change in assets Change in liabilities

Deposits at Chase +$40,000 BMW’s deposit +$40,000

Citibank, New YorkCitibank, New York

Change in assets Change in liabilities

Reserves at Fed －$40,000

Car buyer’s deposit －$40,000

Case Manhattan Bank, New YorkCase Manhattan Bank, New York

Change in assets Change in liabilities

Reserves at Fed +$40,000 Barclays’ deposit +$40,000

Have any dollars escaped abroad?Have any dollars escaped abroad?

• A reshuffling of reserves between banks’ accounts at the Fed and a corresponding shift in deposits from the bank losing reserves to the one gaining them. The U.S. The U.S. monetary basemonetary base—the sum of the banking system’s reserves at the Fed and the currency supply—does not does not change.change.

• Because the U.S. monetary base equals the liabilities side of the Fed’s balance sheet, which has not changed, no reduction in the U.S. money supply has to occur no reduction in the U.S. money supply has to occur for the Eurodollar supply to risefor the Eurodollar supply to rise.

• No dollar escaped abroadNo dollar escaped abroad!!

• However, if Barclays lends part of the $40000 to customers, the Eurodollar supply can rise by more than $40000, but there is still no migration of dollars from the U.S. no migration of dollars from the U.S. to Europeto Europe.

Barclays Bank, LondonBarclays Bank, London

Change in assets Change in liabilities

Deposits at Chase +$5,000

Loan to Philips +$35,000

BMW’s deposit +$40,000

Deutsche Bank, LondonDeutsche Bank, London

Change in assets Change in liabilities

Deposits at B. Trust +$35,000 Philips’ deposits +$35,000

Bankers Trust, New YorkBankers Trust, New York

Change in assets Change in liabilities

Reserves at Fed +$35,000 Deutsche’ deposit +$35,000

Supply of Eurodollars risesSupply of Eurodollars rises!

• the supply of Eurodollars rises by

$75,000 = $40,000

deposited at Barclays by BMW

+$35,000

deposited at Deutsche Bank by

Philips• U.S. monetary base is unaffected!U.S. monetary base is unaffected!

• The $40,000 paid out by the U.S. auto buyer who initiates all this, always finds its always finds its way back to the U.S. banking systemway back to the U.S. banking system. Once again, the expansion in the volume of expansion in the volume of Eurodollars can occur without any dollars Eurodollars can occur without any dollars ever having to “leave” the United Statesever having to “leave” the United States.

The growth of Eurocurrency TradingThe growth of Eurocurrency Trading

• Three reasons for the growth of offshore banking activities:

1. the growth of world trade;

2. government financial regulations (including taxes);

3. political considerations

Emerge of Eurocurrency market in Chinese version

Growth of Euro-Currency MarketGrowth of Euro-Currency Market• Eurodollars were born in the late 1950sEurodollars were born in the late 1950s, a response to the

needs generated by a growing volume of international tradeinternational trade. European firms involved in trade frequently wished to hold dollar balances or to borrow dollars. Europeans often found it cheaper and more convenient to deal with local banks familiar with their circumstances.

• In 1957, the British government prohibited British banks from In 1957, the British government prohibited British banks from lending pounds to finance non-British tradelending pounds to finance non-British trade. In order to avoid losing this lucrative business, British banks began financing the same trade by attracting dollar deposits and lending dollars instead of pounds. The British government took a laissez-faire took a laissez-faire attitudeattitude toward foreign currency activities. As a result, London became-and has remained-the leading center of Eurocurrency trading.

Growth of Euro-Currency MarketGrowth of Euro-Currency Market

• During the 1950s, the Soviet Union acquired dollar (largely through sales of gold and other raw materials). It feared the U.S. might confiscate dollars placed in American bands if the Cold War were to heat up. So instead, Soviet dollars were placed in European banks.Soviet dollars were placed in European banks.

• The Eurodollar system mushroomed in the 1960s as a result of new U.S. restrictions on capital outflows and new U.S. restrictions on capital outflows and U.S. banking regulationsU.S. banking regulations..

• Arab members of OPECOPEC accumulated vast wealth as a result of the oil shocks, but reluctant to place most of their money in American banks for fear of possible confiscation. Instead, these countries placed funds with placed funds with EurobanksEurobanks.

Effect of Regulatory Asymmetries Effect of Regulatory Asymmetries • Eurocurrency benefited governments’

discriminatediscriminate between deposits denominated in the home currency and those denominated in others and between transactions with domestic customers and those with foreign customers. Domestic currency deposits are heavily Domestic currency deposits are heavily regulated as a way of maintaining control regulated as a way of maintaining control over the domestic money supply, while banks over the domestic money supply, while banks are given much more freedom in their are given much more freedom in their dealings in foreign currenciesdealings in foreign currencies.

Effect of Regulatory AsymmetriesEffect of Regulatory Asymmetries

• Freedom from reserve requirementsFreedom from reserve requirements is probably the most important regulatory factor that makes Eurocurrency trading attractive to banks and their customers. Eurodollar deposits are available in shorter maturities than the corresponding time deposits banks are allowed to issue in the United States.

Effect of Regulatory AsymmetriesEffect of Regulatory Asymmetries

• In 1981, the Fed allowed resident banks to set up international banking facilities (IBFs) in the United States for the purpose of accepting time deposits and making loans to foreign customers. IBFsIBFs are not subject to reserve requirements or interest rate ceilings, and they are exempt from state and local taxes. But an IBFIBF is prohibited from accepting deposits from or lending money to U.S. residents. Technically speaking, a dollar deposit in an IBFIBF is not a Eurodollar because the IBFIBF resides physically within the United States.

Asian Offshore Currency MarketsAsian Offshore Currency Markets

• Many countries intend to lure lucrativelure lucrative international banking business to their shores while trying to insulateinsulate domestic financial systems from the banks’ international activities. Similar international banking enclavesbanking enclaves in the Asian Currency Units of SingaporeSingapore, Hong KongHong Kong and the TokyoTokyo Offshore Market. (See More)

Types of Euro Currency MarketTypes of Euro Currency Market1.1. 一体型一体型：境内与境外金融市场业务融为

一体。离岸资金可随时转换为在岸资金（国内资金）。在岸资金也可随时转为离岸资金。香港，伦敦香港，伦敦。。

2.2. 分离型分离型：境内与境外业务分开，居民与非居民的存贷业务分开。以隔绝国际游资对本国货币存量和宏观经济影响。美国 (International Banking Facility) ，东东京，新加坡京，新加坡。

3.3. 簿记型簿记型（走帐型）：纯属为逃避税收和管制，为其他金融市场交易进行记帐或划帐。巴哈马拿骚巴哈马拿骚

International Bond Market--1International Bond Market--1• 国际债券市场• 国际债券国际债券 : 一国政府 , 金融机构或企业在国

际金融市场上以外国货币为面值以外国货币为面值发行的债券。

• 由于对发行者和投资者都有好处，国际金融市场证券化趋势在加强。

· ¢Ð ÐÊ Ð³ ¡Õ ®È µ̄ Ä· ¢Ð к Ͳ ɹ º

Á ÷Í Ê̈ г ¡Õ ®È µ̄ ÄÉ ÏÊ Ðº ͽ »Ò ×

¹ ú¼ ÊÕ ®È Ê̄ г ¡

International Bond Market--2International Bond Market--2• 国际债券的类型国际债券的类型• 按发行方式发行方式划分：1.1. 公募债券公募债券 (Public Offering BondPublic Offering Bond) ：在证券市

场上公开销售；通过国际认可的债券信用评定机构的评级；借款人公布自己各项情况。

2.2. 私募债券私募债券 (Private Placement BondPrivate Placement Bond) ：私下向限定的投资者发行；债券不能上市转让；债券利率高于公募债券利率。无需债券信用评定机构评级；发行者也无需公布自己情况。

International Bond Market--3International Bond Market--3• 按是否以发行地所在国货币为面值发行地所在国货币为面值划分：1.1. 外国债券外国债券 (Foreign BondForeign Bond) ：借款人在其本国以

外某一国家发行的，以发行地所在国货币为面值的债券。发行必须经发行的所在国政府比准。在日本发行的外国债券 ( 日元 ) 武士债券武士债券 (Sa(Samurai Bond)murai Bond) ；在美国发行的美元债券洋基债洋基债券券 (Yankee Bond)(Yankee Bond) ；在英国发行的英镑债券猛猛犬债券犬债券 (Bulldog)(Bulldog) 。

2.2. 欧洲债券欧洲债券 (Euro-bondEuro-bond) ：借款者在债券票面货币发行国以外或在该国的离岸金融市场发行的债券。它的发行不受任何国家金融法规的管辖。例如，中国在日本市场发行的美元债券中国在日本市场发行的美元债券。

International Bond Market—4International Bond Market—4

• Foreign BondForeign Bond: Bond sold outside the country of the borrower, but in the country of the currency in which the bond is denominated. The bond is underwritten by local institutions and is issued under the regulations prevalent in that country. For example, a U.S. company might float a bond issue in the Swiss capital market, underwritten by a Swiss syndicate and denominated in Swiss francs. The bond issue is sold to investors in the Swiss capital market, where it will be quoted and traded.

International Bond Market—5International Bond Market—5English versionEnglish version

• Euro-bondEuro-bond: Bond denominated in the borrowers’ currency but sold outsidesold outside the country of the borrower, usually by an international syndicate. The Euro-bond market, although centered in Europe, is truly truly internationalinternational in the sense that the underwriting syndicates comprise investment bankers from a number of countries, the bonds are sold to investors around the world, and floatation are not governed by national regulations.

Censoring process of issuanceCensoring process of issuance• Step 1Step 1: 借款者到证券交易委员会注册登记注册登记，提交各种证明文件；经审查批准后，才能取得债券发行资格。• Step 2Step 2: 债券发行管理机关对借款者资格审查借款者资格审查：1.1. 担保证书担保证书：要由政府，大企业，银行出出具保证书。2.2. 债信审查债信审查： 调查发行人在历史上有无拖欠的 未偿清债务或债务诉讼纠纷。3.3. 发行经验发行经验：4.4. 发行间隔发行间隔：同一发行人在1年中不得发行2-3次。避免偿债高峰集中。5.5. 信用评级信用评级：对借款人经济实力作出信用评价。

Credit Grading--1Credit Grading--1• 国际证券评级机构 (authorized, designated)

1.1. 美国标准普尔公司美国标准普尔公司 Standard and Poor’s CStandard and Poor’s Corp.orp.

2.2. 穆迪投资服务公司穆迪投资服务公司 Moody’s Investment SeMoody’s Investment Servicervice

3. 加拿大债券级别服务公司4. 英国艾克斯特尔统计服务公司5. 日本社债研究所6. 美国德发公司

Credit Grading—2Credit Grading—2

公司债券评级系统及标识符一览表公司债券评级系统及标识符一览表穆迪公司 S&P 公司 菲奇公司 D&P 公

司简要定义

投资级 --- 高信誉Aaa AAA AAA AAA 金边债券，

一流质量，最高安全性Aa1 AA+ AA+ AA+

Aa2 AA AA AA 优等，高质量Aa3 AA- AA- AA-

A1 A+ A+ A+中上等

A2 A A A

公司债券评级系统及标识符一览表公司债券评级系统及标识符一览表穆迪公司 S&P 公司 菲奇公司 D&P 公

司简要定义

投资级 --- 高信誉A3 A- A- A-

Baa1 BBB+ BBB+ BBB+

中下等Baa2 BBB BBB BBB

Baa3 BBB- BBB- BBB-

显著投机型 ---低信誉Ba1 BB+ BB+ BB+

低级， 投机型Ba2 BB BB BB

Ba3 BB- BB- BB-

公司债券评级系统及标识符一览表公司债券评级系统及标识符一览表穆迪公司 S&P 公司 菲奇公司 D&P 公

司简要定义

纯粹投资型 ---极大的违约风险CCC+ 风险极大

处境困难Caa CCC CCC CCC

CCC-

Ca CC CC 违约易发生，极度投机型

C C C 更具有投资型

C1 不支付利息

DDD

违约型DD DD

D D

Credit Grading—3Credit Grading—3• 穆迪投资服务公司穆迪投资服务公司 Moody’s Investment SMoody’s Investment S

erviceervice 1995 年将中国的独资商业银行的信用评级降为 E 级。

总资产 一级资本 资本资产率1000家银行 332114 14881 4. 48工商银行 4890.12 116. 98 2. 39中国银行 3056. 38 105. 94 3. 47建设银行 2031. 16 59. 88 2. 95农业银行 1900. 95 48. 02 2. 53

1998 1000年世界 家银行与中国国内银行比较（亿美元，%）

1996年，工，农，中，建四大银行不良贷款比例分别高达 25. 66%, 34. 55%, 17. 48%和 20. 31%

穆迪公司调整中国穆迪公司调整中国 88 家银行评级家银行评级中国工商银行 E+

中国银行 D-

中国建设银行 E+

中国光大银行 D-

招商银行 D-

浦东发展银行 D-

广东发展银行 E+

深圳发展银行 E+

Eurocurrencies & Macroeconomic Eurocurrencies & Macroeconomic StabilityStability

• Two paramount worries:

1. The unregulated process of Eurocurrency creation has been producing a vast pool of international liquidity that would set off worldwide inflation.

2. The Eurocurrency system makes it more difficult for national monetary authorities to control their money supply.

Regulating international bankingRegulating international banking

• The problem of bank failure: A bank fails when it is unable to meet its obligations to its depositors. A general loss of confidence in banks undermines the payment system on which the economy runs.

The main U.S. safeguards: 1.1. Deposit insuranceDeposit insurance. (amount to $100,000)

2.2. Reserve requirementReserve requirement. (force the bank to hold a portion of its assets in a liquid form.)

3.3. Capital requirements & asset restrictionCapital requirements & asset restriction.(the difference between a bank’s assets and its liabilities, equal to the bank’s net worth,…)

4.4. Bank examinationBank examination.(The Federal Deposit Insurance Corporation (FDIC))

5.5. Lender of last resort facilitiesLender of last resort facilities. (LLR) (Fed can create currency, bail the banks out…)

Deregulation vs. RegulationDeregulation vs. Regulation•Maximum Profit

•Most Efficient: Best allocation of capital in the world.

•Promote and finance international trade

•Deregulation will facilitate the process of global integration.

•Increase of risks and disorder

•Impotent in domestic financial policy

•Regulation is necessary: Interest ceiling; reserve requirement and so on

Difficulties in regulating international Difficulties in regulating international bankingbanking

1. Deposit insurance is essentially absent in international banking. (amount of insurance is too small.)

2. The absence of reserve requirements has been a major factor in the growth of Eurocurrency trading.

3. plus 4. Bank examination to enforce capital requirements and asset restrictions becomes more difficult in an international setting.

• (monitoring subsidiaries.)

5. There is uncertainty over which central bank is responsible for providing LLR assistance in international banking.

International regulatory cooperationInternational regulatory cooperation• Offshore bankingOffshore banking involves a tremendous volume

of interbank depositsinterbank deposits—roughly 80% of all Eurocurrency deposits are owned by private banks. →set off a banking panic on a global scale.

Basle Committee--1Basle Committee--1• In response to the 1974 banking crises, central bank

heads from 11 11 industrialized countries set up a group called Basel CommitteeBasel Committee whose job was to achieve “a better co-ordination of the surveillance exercised by national authorities over international banking system …” (The group was named after Basle, Switzerland, the home of the central bankers’ meeting place, the Bank for International Settlements.) The Basle Committee remains the major forum for cooperation among bank regulatorsbank regulators from different countries.

Basle Committee--2Basle Committee--2• In 1975, the Committee reached an agreement, called

the ConcordatConcordat, which allocated responsibility for supervising multinational banking establishments between parent and host countries. In addition, the Concordat called for the sharing of information about banks by parent and host regulators and for “the the granting of permission for inspections by or on granting of permission for inspections by or on behalf of parent authorities on the territory of the behalf of parent authorities on the territory of the host authorityhost authority.” In further work the Basle Committee has located loopholesloopholes in the supervision of multinational banks and brought these to the attention of national authorities.

Basle Committee--3Basle Committee--3• A major step toward reconciling countries’

supervisory practices was taken in January 1988 when the Basle Committee agreed to a set of common standards for assessing bank capital adequacy. These standards require international banks to hold capital hold capital equal to at least 8 % of their risk-weighted assets plus equal to at least 8 % of their risk-weighted assets plus off-balance-sheet commitments. This 8 % off-balance-sheet commitments. This 8 % requirement is high by historical standards for some requirement is high by historical standards for some banksbanks (e.g., Japan’s). But the narrow escape from financial crisis during the worldwide stock market crash of Oct. 1987 presented the Committee with a persuasive case for tough standards.

Basle Committee--4Basle Committee--4• The failure of a major securities housesecurities house could

seriously disrupt national payment and credit networks. Increasing securitizationsecuritization (in which bank assets are repackaged in readily marketable forms) has made it harder for regulators to get an accurate picture of global financial flows by examining bank balance sheets alone. In 1992 the European Community moved to impose uniform capital uniform capital requirementsrequirements on securities firms and on banks’ trading operations.

Basle vs. Developing countriesBasle vs. Developing countries

• In Sep. 1997, the Basle Committee issued its Core Principles for Effective Core Principles for Effective Banking SupervisionBanking Supervision, worked out in cooperation with representatives from many developing countries. That document sets out 25 principles deemed to describe the minimum necessary requirements for effective bank supervision…

Process of China’s Financial DevelopmentProcess of China’s Financial Development

• 上海，深圳股票市场股票市场的迅速发展： 1990 年 12月 19 日上海证券交易所正式对外营业。 1991 年 7月深圳市证券交易所也对外营业。

• 1991 年 10月专供境外投资者以外汇进行买卖的记名式股票 --BB 种股票种股票发行，标志着中国证券市场走向国际化证券市场走向国际化。

• 1990 年 10月人行批准成立全国金融市场报价交易信息系统。（两所一网：上海，深圳证交所和全国报价信息网全国报价信息网）

• 1994 年 4月 1 日中国银行间外汇交易中心中国银行间外汇交易中心正式运行。

Initial Stage of China’s Stock MarketInitial Stage of China’s Stock Market-No correlation between stock price and interest rate-No correlation between stock price and interest rate

中国的股市尚未成熟：股价对利率的变动反应不敏感

Issuance of International Bond by ChinaIssuance of International Bond by China

1982 年中国国际投资信托公司在东京首次发行日元固定利率私募债券。 10多年来，中国先后在东京，香港，纽约，法兰克福，伦敦，新加坡等国际金融中心发行了国际债券。

Development of China’s Stock MarketDevelopment of China’s Stock Market

1991-19981991-1998 年沪深证券交易所股票市场统计表年沪深证券交易所股票市场统计表

International Comparison--1International Comparison--1

沪，深证券交易所

纽约证券交易所

东京证券交易所

伦敦证券交易所

法兰克福证券交易

所

3,483 107,000 30,000 23,000 12,000

中国证券市场与国际主要成熟证券市场规模对比中国证券市场与国际主要成熟证券市场规模对比 单位：亿美元

时间截止 1999 年 7月底

International Comparison--2International Comparison--2

中国中国 美国美国 英国英国 韩国韩国 泰国泰国 墨西哥墨西哥

24.424.4 135.5135.5 154.3154.3 29.429.4 50.250.2 33.533.5

国民经济证券化率的国际比较国民经济证券化率的国际比较 以证券市场市值占以证券市场市值占 GDPGDP 比率计比率计

时间为 1998 年末： 单位： %

Shanghai will be the financial center of ChinaShanghai will be the financial center of China

总额（亿美元）总额（亿美元） 占比率占比率上海上海 148.13148.13 47.23%47.23%

深圳深圳 42.7542.75 13.63%13.63%

北京北京 30.9930.99 9.80%9.80%

大连大连 21.3721.37 6.81%6.81%

天津天津 20.1820.18 6.43%6.43%

广州广州 19.9919.99 6.37%6.37%

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