Let Them Be Liquid
In this analysis, we build on our initial one of the new U.S. proposal to implement the “super-equivalent” version of the Basel liquidity rules. An in-depth assessment of the proposal confirms our initial alert – the screws are turned for bank holdings of agency paper and use of FHLB advances. Securitization also gets short shrift, even if it’s into the TBA market. However, operational holdings of GSE paper are given considerable credit for liquidity purposes, reflecting a better regulatory understanding of how deeply intertwined big issuers are with the GSEs for purposes of keeping the secondary market afloat.

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