TAILIEUCHUNG - CGFS Papers : Financial stability and local currency bond markets

The first set of factors lower the cost of default. Default propensity is exaggerated by state laws providing for a greater amount of homestead protection or for less-than-full recourse on the defaulting borrowers by lenders. This is because they shield a greater proportion of the borrower’s wealth and income from capture by the lender post-default and, (if applicable), a subsequent bankruptcy. Recent evidence also suggests that the 2005 personal bankruptcy reform may have contributed to lessening (non-strategic) borrowers’ financial ability and incentive to use the Chapter 13 option, remain current on their mortgage obligations, and save their homes. 7 The. | Committee on the Global Financial System CGFS Papers No 28 Financial stability and local currency bond markets Report submitted by a Working Group established by the Committee on the Global Financial System. This Working Group was chaired by David Margolin of the Bank of Mexico. June 2007 JEL Classification numbers E44 F34 G10 Copies of publications are available from Bank for International Settlements Press Communications CH 4002 Basel Switzerland E mail publications@ Fax 41 61 280 9100 and 41 61 280 8100 This publication is available on the BIS website . Bank for International Settlements 2007. All rights reserved. Brief excerpts may be reproduced or translated provided the source is cited. ISBN 92-9131-731-4 print ISBN 92-9197-731-4 online Contents A. Financial stability and bond The current New financial risks .3 Summary of the Working Group s B. The role of Macroeconomic policies inflation and bond Microeconomic Government debt issuance Asian Bond Fund and other The contribution of international financial institutions IFIs .14 C. The shift from foreign to local currency Bonds in the financial BIS statistics on bonds Global bonds in local The structure of domestic debt Debt ratios and D. Analysis of risk Foreign currency Interest rate Stress E. Liquidity in government bond Liquidity and financial Has liquidity improved in the government bond market .45 Factors affecting F. The issuer Public Financial Corporate bonds .58 Securitisation and asset-backed securities markets .61 G. The domestic investor base .67 Holdings by Non-bank financial institutions .72 H. Non-resident investors .77 Overview of recent trends .77 CGFS - Financial .

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