TY - JOUR
T1 - What drives the liquidity of sovereign bonds when markets are under stress? An assessment of the new Basel 3 rules on bank liquid assets
AU - Petrella, Giovanni
AU - Resti, Andrea
PY - 2016
Y1 - 2016
N2 - The new rules on bank liquidity set by the Basel Committee require banks to hold high-quality liquid assets (HQLAs) against future cash outflows in periods of market stress. Domestic government bonds are considered to be HQLAs. To assess the appropriateness of this rule, we investigate the liquidity of European government bonds in ordinary times and in periods of market turmoil. We find that the effect of adverse market conditions on liquidity strongly depends on individual bond’s characteristics. Our evidence argues for rules on HQLAs that should constrain the eligibility of government bonds depending on their characteristics (primarily, duration and rating).
AB - The new rules on bank liquidity set by the Basel Committee require banks to hold high-quality liquid assets (HQLAs) against future cash outflows in periods of market stress. Domestic government bonds are considered to be HQLAs. To assess the appropriateness of this rule, we investigate the liquidity of European government bonds in ordinary times and in periods of market turmoil. We find that the effect of adverse market conditions on liquidity strongly depends on individual bond’s characteristics. Our evidence argues for rules on HQLAs that should constrain the eligibility of government bonds depending on their characteristics (primarily, duration and rating).
KW - liquidity
KW - liquidity
UR - https://publicatt.unicatt.it/handle/10807/90585
UR - https://www.scopus.com/inward/citedby.uri?partnerID=HzOxMe3b&scp=84999779298&origin=inward
UR - https://www.scopus.com/inward/record.uri?partnerID=HzOxMe3b&scp=84999779298&origin=inward
U2 - 10.1016/j.jfs.2016.07.018
DO - 10.1016/j.jfs.2016.07.018
M3 - Article
SN - 1572-3089
SP - 297
EP - 310
JO - Journal of Financial Stability
JF - Journal of Financial Stability
IS - 33
ER -