Among the main developments:
- The combined current account of the major seven industrial countries continued to strengthen in the third quarter of 1986, but imbalances widened further with sharp increases in the German and Japanese surpluses and a rise in the US deficit.
- In the capital markets, the perpetual FRN market temporarily ceased trading on 3 December, apparently in response to a general feeling that spreads on perpetual FRNs had been driven to unrealistically low levels. There was a consequent reappraisal of the correct value of perpetual FRNs issued by banks which, in a narrowly-based market, led to the suspension of trading.
- There was a record growth in the external assets of banks in the BIS reporting area in the third quarter of 1986. This was almost entirely lending within the reporting area: most of it was interbank activity, dominated by Japanese banks, but the increase in lending to final users was also exceptional-the highest quarterly increase since 1981.
- In the foreign exchange markets, the dollar fell back sharply against Continental European currencies, particularly the deutschemark. The strength of the deutschemark brought pressure on the EMS and the system became fully stretched by the end of the period.
International financial developments