Posts tagged 'Shortage of Safe Assets'

Getting around the “safe asset shortage”, Australian style

For those who forgot to mark their calendars, January 1 marked the official start date of the Liquidity Coverage Ratio, which will be fully phased-in by 2019. The LCR aims to reduce bank vulnerability to runs by requiring lenders to hold a certain proportion of safe, easy-to-sell assets to offset their short-term obligations.

The easiest way for a bank to satisfy this requirement is to buy government debt and hold reserves with the monetary authority. In the US, domestically-chartered commercial banks hold about $600 billion in US Treasury debt — a shade less than 6 per cent of the total held by the public (excluding the Fed), as well as $1.5 trillion in cash and reserves at the Fed. Add in the $1.4 trillion of MBS guaranteed by Fannie and Freddie, which for regulatory purposes counts as a liability of the US Treasury, and you have roughly 28 per cent of the total value of domestically-chartered bank assets held in the form of safe and liquid securities. Read more

Counterintuitive insights that are only now making the mainstream now

We just saw this post from Pragmatic Capitalism’s Cullen Roche on the supply of assets.

It offers a nice chart showing net issuance of “safe” assets, from Citi’s research team:

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