TheDemand(andSupply)ofHighQuality Liquid CollateralPost Financial CrisisREEORM:THENEWODYSSEYFORDEVELOPMENTTSINGHUAPBCSEGLOBALFINANCEFORUMMAY10-12,2014SeanD.CampbellDeputyAssociateDirectorDivisionofResearchandStatisticsFederalReserveBoardWashingtonD.C,20551
R E F O R M : TH E N E W O D YS S E Y F O R D E V E LO P M E N T TS IN G H U A P B C S F G LO B A L F IN A N C E F O R U M M A Y 1 0 - 1 2 , 2 0 1 4 The Demand (and Supply) of High Quality Liquid Collateral Post Financial Crisis Sean D. Campbell Deputy Associate Director Division of Research and Statistics Federal Reserve Board Washington D.C, 20551
DisclaimerThe views expressed in this talk are those of thepresenter and should not be attributed to the Boardof governors of the Federal Reserve System or othermembersofitsstaff
Disclaimer The views expressed in this talk are those of the presenter and should not be attributed to the Board of governors of the Federal Reserve System or other members of its staff
The Financial Crisis and Liguidity RiskLiquidity risk was a critical aspect of the financial crisisLeadingupto thecrisis privatemarkets createdsignificantamountsofinstruments(ABCP,AAAsecuritizations)thatsatisfied privatedemandsforliquidityLiquidity, however, is usually not intrinsic or guaranteed"butdepends on an ongoing willingness to treat an asset as “liquid' The crisis was, in part, a period of spiking demand forliquidity and a substantial reduction in the instruments thatweredeemed"liquid
The Financial Crisis and Liquidity Risk Liquidity risk was a critical aspect of the financial crisis Leading up to the crisis private markets created significant amounts of instruments (ABCP, AAA securitizations) that satisfied private demands for liquidity Liquidity, however, is usually not intrinsic or “guaranteed” but depends on an ongoing willingness to treat an asset as “liquid” The crisis was, in part, a period of spiking demand for liquidity and a substantial reduction in the instruments that were deemed “liquid
The Financial Crisis and Liguidity Risk"The multiple instances of run-like behavior during thecrisis, together with the associated sharp increases inliquidity premiums and dysfunction in many markets,motivated much of the Federal Reserve's policyresponse."-Ben Bernanke, 4/2o12The“liquidity run" affected both traditional banks and"so-called"shadowbanks.Fed crisis policies aimed to provide liquidity to bothsectorsbutharderto accomplish for shadowbanks(PDCF,AMLF)
The Financial Crisis and Liquidity Risk “The multiple instances of run-like behavior during the crisis, together with the associated sharp increases in liquidity premiums and dysfunction in many markets, motivated much of the Federal Reserve’s policy response.” – Ben Bernanke, 4/2012 The “liquidity run” affected both traditional banks and “so-called“ shadow banks. Fed crisis policies aimed to provide liquidity to both sectors but harder to accomplish for shadow banks (PDCF, AMLF)
Post Financial Crisis Reform Agenda Following the financial crisis, global regulatorsquickly determined that additional liquidityregulation was required to improve the resiliency ofthe financial system.Some aspects of reform program targets traditionalbanks - Liquidity Coverage Ratio (NSFR)Otheraspectstarget shadowbanking-CentralClearing ofDerivatives and MarginReguirements forNon-Cleared Derivatives
Post Financial Crisis Reform Agenda Following the financial crisis, global regulators quickly determined that additional liquidity regulation was required to improve the resiliency of the financial system. Some aspects of reform program targets traditional banks - Liquidity Coverage Ratio (NSFR) Other aspects target shadow banking – Central Clearing of Derivatives and Margin Requirements for Non-Cleared Derivatives