Over the past two years, among US commercial banks only big ones expanded their portfolios of residential mortgage-backed securities (RMBS) issued by Fannie Mae, Freddie Mac or Ginnie Mae. This increase is related to the finalization of the Basel short-term liquidity rule (LCR).
This rule requires banks to hold enough liquid, high-quality assets: reserves at central bank, debt instruments issued – or guaranteed – by sovereigns, such as Agency RMBS. In the United States, the rule only applies to large, internationally active banks and their subsidiary depository institutions with total assets of 10 billion dollars or more and to banks with 50 billion or more in total consolidated assets. The trend was especially visible for Bank of America: its stock of Agency securities (64% of its liquidity cushion) increased by 80 billion dollars between June 2014 and June 2016.
by Céline CHOULET