Undoing Fixed Income
We have completed our analysis of the systemic liquidity standards released last week by the Federal Reserve, concluding that the new rules covering the largest BHCs and foreign banks doing business in the U.S. will have a dramatic impact on fixed-income pricing for an array of obligations – agencies included – as well as spark more demand for FHLB advances. The rules could counteract the conservative stand taken in the pending liquidity-coverage ratio (LCR) for agency paper because these tough qualitative rules will be the binding constraint for big-bank liquidity much as capital stress tests define real capital requirements no matter what other rules may say.
The full report is available to subscription clients. To find out how you can sign up for the service, click here