What drives the liquidity of sovereign bonds when markets are under stress? An assessment of the new Basel 3 rules on bank liquid assets

Giovanni Petrella, Andrea Cesare Resti, Andrea Resti

Risultato della ricerca: Contributo in rivistaArticolo in rivistapeer review

6 Citazioni (Scopus)

Abstract

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).
Lingua originaleEnglish
pagine (da-a)297-310
Numero di pagine14
RivistaJournal of Financial Stability
DOI
Stato di pubblicazionePubblicato - 2016

Keywords

  • liquidity

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