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).

Petrella, G., Resti, A., What drives the liquidity of sovereign bonds when markets are under stress? An assessment of the new Basel 3 rules on bank liquid assets, <<JOURNAL OF FINANCIAL STABILITY>>, 2017; (33): 297-310. [doi:10.1016/j.jfs.2016.07.018] [http://hdl.handle.net/10807/90585]

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

Petrella, Giovanni;Resti, Andrea
2016

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).
Inglese
Petrella, G., Resti, A., What drives the liquidity of sovereign bonds when markets are under stress? An assessment of the new Basel 3 rules on bank liquid assets, <>, 2017; (33): 297-310. [doi:10.1016/j.jfs.2016.07.018] [http://hdl.handle.net/10807/90585]
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/10807/90585
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