This essentially means that the bulk of LCR assets must be public sector securities that are “traded in large, deep and active repo or cash markets.” The aim clearly is to base the standard on the best available liquid assets and to achieve cross-border consistency for internationally active banks. However, for many countries, this model does not fit.
In Australia, South Africa and Norway, for example, government securities are relatively limited in supply, and they are often locked away in long-term investment portfolios, thus further limiting the liquidity of secondary markets. The BCBS has considered situations where the market for HQLA might not be large enough to support LCR requirements and has developed alternative liquidity arrangements (ALAs).