Definition of safe assets

Safe assets are those which are deemed to be relatively low risk while at the same time offering high liquidity, in that there is a ready market to buy and sell them.

The definition of safe assets contains a strong regulatory component because regulators often define what safe assets are – for example, when it comes to assessing bank balance sheets under the terms of Basel III.

 

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High quality assets are used as collateral but at the beginning of 2013 there were concerns that there was a shortage of such assets causing a collateral crunch. There were still plenty of high-quality government bonds around, but legitimate concerns remained over, for example, the eurozone, where perceptions about the safety of sovereign debt had been undermined.

Central bankers and regulators meeting in Basel in January 2013 included a formal definition of high-quality liquid assets for the purpose of global liquidity standards. While government bonds, cash and central bank reserves remain the gold standard for safe assets, the Basel Committee said that covered bonds, investment-grade corporate bonds, high-quality mortgage-backed securities and some equities could also qualify.[1]

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Desperately seeking a line in safe assets

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