Abstract:

The EBA has analysed the liquidity of different asset classes as part of its work for the European Commission on definitions to be employed in a European implementation of the Liquidity Coverage Ratio. This paper critically examines the EBA’s analysis, focussing on the exclusion of bid-ask spread data from the evidence employed. Using bid-ask spreads, we show that Asset-Backed Securities (ABS) and Covered Bonds (CB) do not exhibit radically different levels of liquidity in recent years. Furthermore, we show that, based on bid-ask spreads, some non-residential-mortgage-backed ABS (excluded from the LCR in the EBA proposals) have been more liquid than CBs.