Are there enough liquid assets to satisfy regulations?
Incoming rules will create demand for large quantities of liquid assets – principally government bonds – and will also require those assets to be locked away. It’s not clear there are enough bonds to go round, and nobody knows how the system will function when it’s less well lubricated. By Duncan Wood
If the financial system is a machine - a rumbling contraption of cogs, gears, belts, levers and dials - then liquid assets are the grease that keeps it running. Regulators are now putting the finishing touches to three different sets of rules that will force market participants to hold more liquid assets, possibly amounting to multiple trillions of dollars - but will also prevent this grease from being spread around the system.
The end result could be a smaller machine that is more expensive to
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