Basel: Global Liquidity Coverage Ratio (LCR) Targets – Nom de Plumber’s Thought of the Day

ndp   Nom de Plumber is a Nom de Plume.

———— .

http://www.bloomberg.com/news/2012-08-27/ecb-said-to-urge-weaker-basel-liquidity-rule-on-crisis-concerns.html

The regulatory mistake is trying to define in advance what should be completely liquid assets under all market scenarios, and then mandating all banks to own them, for the hundred-year flood which happens every ten years (1987 equity crash, 1998 LTCM failure, 2008 global collapse, 2018…..).  This policy-sponsored version of an ultra-crowded trade will simply spawn the next loss-correlation debacle.   Once everybody subsequently needs to sell Basel LCR-compliant assets under stress, which buyers will provide such liquidity?    If investors and regulators can know in advance all potential scenarios,

We should not be in the fifth year of this global crisis.

A much better approach would be to foster general market liquidity, without favoring or disfavoring specific assets, by restoring:

  • legal contract sanctity
  • loss privatization rather than socialization
  • risk-capital sufficiency
  • credit market pricing integrity (removal of zero interest-rate policies).    

Thank you.

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One thought on “Basel: Global Liquidity Coverage Ratio (LCR) Targets – Nom de Plumber’s Thought of the Day

  1. Pingback: Garbage to Gold: EU-Mandated "Liquid" Sovereign Debt: Safe, Regardless of Risk – Nom de Plumber’s Thought of the Day | Mortgage News Clips

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