How different are Equity Markets

Equity markets (specifically the market for large capitalization stocks) seem to be very different from other markets in that they areblog the only markets that are unconditionally liquid. The Basel Committee has officially recognized this – in their classification of 24 markets by liquidity horizons, the large cap equity market is the only market in the most liquid bucket. (Basel Committee on Banking Supervision, Fundamental review of the trading book: A revised market risk framework, Second Consultative Document, October 2013, Table 2, page 16)

There is abundant anecdotal evidence for the greater liquidity of large cap equity markets in stressed conditions – you may not like the price but you would not have any occasion to complain about the volume. For example, in India when the fraud in Satyam was revealed, Continue reading “How different are Equity Markets”

Basel’s Diluted Liquidity Rule Compounds Capital Failure

This weekend banks got a big win from Basel, easing liquidity requirements more than expected. Banks surged after screen shot 2013-01-07 at 4.33.27 amunexpected win over the weekend.

How memories fade. Five years ago the UK had witnessed the first run on a bank – Northern Rock – since 1866 while the panic that followed a year later when Lehman Brothers collapsed led to £65bn of taxpayer money being poured into Royal Bank of Scotland, Lloyds and HBOS.

Indeed in 2010 Lord Turner, chairman of the Continue reading “Basel’s Diluted Liquidity Rule Compounds Capital Failure”