1、The Demand and Supply of High Quality Liquid Collateral Post Financial Crisis Discussion at PBOC/Tsinghua Global Finance Forum,The views expressed in this discussion are those of mine and not of Moodys Investors Service,by Jian Hu, Managing Director, Moodys,12 May 2014,Agenda,Highlights of Seans pre
2、sentation Beyond Diamond and Dybvig (1983) Challenges in determining liquidity requirement Opportunities for bond markets,Highlights,“Liquidity run” affected both traditional banks and “shadow banks” and in different waysLiquidity coverage and enhanced central clearing/margin requirements are two ke
3、y aspects of the “liquidity regulation” post the financial crisisLiquidity coverage requirement is important but difficult to determineMore so for shadow banks (derivatives)Supplies of liquid assets are expected to grow but may not be in the right place,Beyond Diamond and Dybvig (1983),Diamond and D
4、ybvig (1983) Role of banks to finance long term investment with short term liabilities (deposits) Two equilibrium exist one of them is “bank run” Deposit insurance backed by government can prevent bank runBanks as liquidity providers and major sources of funding When demand deposits are not sufficie
5、nt, and equity capital is expensive, banks have to rely on debt financing The recent financial crisis demonstrates the danger of “liquidity run”,Challenges in determining liquidity requirement,Sizing liquid needsBank operations are super complexInstrument/asset dependentLiquidity need time windowEme
6、rgence of new credit characteristics and asset typesEligibility criteria/HQLA definitionSovereign bonds, corporate bonds, securitizations, covered bondsWill HQLA be at the right place (where it is most needed) at the right time (when it is most needed)?Cyclicality; regional stresses in a global econ
7、omy,Opportunities for bond markets,Will large banks be incentivized to reduce their long term lending?Koulischer and Struyven (2014): relaxing collateral policy has the potential to increase welfare by reducing the spread between the policy rate and returns in the real economyWill this stimulate the
8、 further development of bond markets?Infrastructure and local govt bondsSecuritizationMore liquidityMore supplyMore transparency,Evolution of US Bond Market Issuance (billions),Source: SIFMA, 2014 Moodys Investors Service, Inc. and/or its licensors and affiliates (collectively, “MOODYS”). All rights
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