International bank lending and bond financing are important components of capital flows between advanced and emerging economies. However, in recent years these flows have been going the wrong way, like water flowing uphill. Even four years after the Asia crisis, there is a net flow of funds from emerging economies to banks in advanced economies. This paper looks at this phenomenon, starting by setting out the relevant data, and then looking at factors influencing these flows. It distinguishes between cyclical influences (both ‘push ’ and ‘pull’) and structural changes within the banking industry. Actions taken by the authorities (including the international bank capital accord) and the role of hedge funds and offshore centres are also covered. It is shown that there is some evidence that international lenders are now more discriminating between the various emerging economies. Some conclusions are then given on page 26. Bank lending and other capital flows International bank lending is a very important component of capital flows to emerging economies. Moreover, bank lending has been the most variable type of capital flow. Table 1 shows how foreign direct investment, and even portfolio investment, held fairly steady through the Asian crisis. However, the international banks went from lending large amounts before the crisis to Any opinions expressed are those of the author and not necessarily shared by the BIS. Helpful comments wer
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