2012.04.18 - SAFE ASSETS
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2012.04.18 - SAFE ASSETS


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Debt
3.45
3.50
3.55
3.60
3.65
3.70
3.75
Full sample Before crisis  After crisis
Sources: Bloomberg L.P.; and IMF staff estimates.
Note: "Before crisis" refers to the period until December 2007; "after crisis" from January 2008 to October 2011. For Europe, threshold between the low- 
and high-spread countries is at 350 basis points.
1Austria, Denmark, Finland, France, Germany, Luxembourg, Netherlands, Norway, and United Kingdom.
2Portugal, Ireland, Italy, and Spain. Greece and Slovenia are excluded due to the lack of data.
 
C H A P T E R 3 S A F E A S S E TS: F I N A N C I A L S YS T E M CO R N E R S TO N E?
 International Monetary Fund | April 2012 9
Each of these safe asset functions has a di!erent 
degree of relevance for various types of investors.15 For 
example, banks\u2014which collectively account for the 
largest share of safe asset holdings\u2014demand safe assets 
for several purposes (Figure 3.5): (1) managing their 
inherent maturity mismatches, (2) ful"lling their pri-
mary dealer and market-making functions, (3) obtain-
ing preferential regulatory treatment through their 
sovereign debt holdings, and (4) using collateral for 
repo and derivatives transactions. Safe assets are critical 
to the conservative, value preservation policies of global 
reserve managers, and their need for ready liquidity. 
Value preservation is also a high priority for some types 
of sovereign wealth funds\u2014particularly stabilization 
funds\u2014whose "scal stabilization role is similar to that 
of reserve managers. #e demand for safe assets by 
insurance companies and pension funds\u2014long-term 
safe asset investors\u2014is largely driven by their need to 
15#e classi"cation and collection of data on holdings of 
government securities by investor type are yet to be standard-
ized. At present, there is no comprehensive centralized database 
on government securities holdings. #e issue is addressed by an 
ongoing initiative of the IMF, Bank for International Settlements, 
European Central Bank, and others to close existing data gaps.
bridge intrinsic asset-liability mismatches and preserve 
market value to meet long-term liabilities. Safe assets 
for non"nancial corporations and individual investors 
largely take the form of sovereign debt, although the 
size of such holdings is limited.16 
#e extent of investor demand varies consider-
ably across countries and has also changed as a result 
of the global "nancial crisis. In the United States, 
foreign investors have dominated the market for 
16#is chapter does not discuss in detail the demand for safe 
assets by individual investors and non"nancial corporations. #eir 
holdings of government securities are limited and typically unlev-
eraged, unlike those of other investors, and are unlikely to pose 
considerable risks to global "nancial stability. Even in the United 
States, where they play a more prominent role relative to most 
other countries, households and non"nancial corporations hold 
less than 11 percent of domestic government debt. In the euro 
area, their holdings, on average, account for less than 8 percent 
of total government debt (Lojsch, Rodríguez Vives, and Slavík, 
2011). Customer bank deposits are considerably more sizable, 
amounting to roughly $40 trillion globally at end-2010. #eir rel-
evance for global "nancial stability, however, is related to tail-risk 
events\u2014such as potential bank runs\u2014that are beyond the scope 
of this chapter. In many countries, such deposits are covered by 
deposit insurance schemes that\u2014within the covered maximum\u2014
provide a degree of safety to individual and corporate investors. 
AAA/AA OECD
government
securities
$33.2
45%
A/BBB OECD
government securities
$5.0
7%
Supranational debt
$1.0
1%
U.S. agency debt
$2.4
3%
ABS, MBS, other
securitization
$12.9
17%
Covered bonds
$3.3
4%
Corporate debt
(Investment grade)
$8.2
11%
Gold
$8.4
11%
Figure 3.4. Outstanding Amounts of Marketable 
Potentially Safe Assets
(In trillions of U.S. dollars and percent of total)                 
Total = $74.4 trillion
Sources: Bank for International Settlements; Dealogic; the European Covered Bond 
Council (ECBC); SIFMA (the Securities Industry and Financial Markets Association); 
Standard & Poor's, World Gold Council; and IMF staff estimates. 
Note: Data for government and corporate debt are as of 2011:Q2; supranational debt, 
covered bonds, and gold, as of end-2010; and U.S. agency debt and securitization, as of 
2011:Q3. ABS = asset-backed securities; MBS = mortgage-backed securities; OECD = 
Organization for Economic Cooperation and Development.
Banks
$13.8
34%
Insurance companies
$6.4
15%Pension funds
$2.7
7%
Sovereign wealth
funds
$0.5
1%
Central banks
including reserve
managers
$8.9
22%
Other
$9.0
22%
Total = $41.3 trillion
Sources: Bank for International Settlements (BIS); Bankscope; Organization for 
Economic Cooperation and Development; and IMF staff estimates.
Note: Banks include commercial, investment, and development banks; data for pension 
funds include only direct holdings; SWF holdings are an IMF staff estimate; reserve 
manager holdings are an IMF staff estimate based on a representative allocation of total 
official reserves to government securities and own government bond holdings by the 
Federal Reserve, Bank of England, and Bank of Japan. "Other" is estimated as a remainder 
based on BIS data on total outstanding government securities worldwide.
Figure 3.5. Holdings of Government Securities Worldwide, 
by Investor Type, End\u20102010
(In trillions of U.S. dollars and percent of outstanding sovereign 
debt)
cial di	
  stress. For official reserve managers and stabilization-oriented sovereign 
G LO B A L F I N A N C I A L S TA B I L I T Y R E P O RT
10 International Monetary Fund | April 2012
U.S. Treasuries in view of its large size and depth 
and its high perceived degree of safety. However, 
postcrisis monetary stabilization e!orts increased 
the prominence of the Federal Reserve as a holder 
of government debt. In Europe and Japan, domestic 
banks have played an important role as sovereign 
debt investors, in each case accounting for about 25 
percent of outstanding sovereign debt (Figure 3.6). 
In the United Kingdom, insurance companies and 
pension funds have been traditional holders of gov-
ernment securities, although the Bank of England 
and foreign investors assumed a more prominent 
role after the global "nancial crisis. 
To assess emerging demand pressures in safe 
asset markets, the following subsections review the 
principal uses of safe assets by the largest market 
participants. #e discussion in subsequent sections 
then turns to the ability of safe asset supply to keep 
up with potential demand, and the implications 
for "nancial stability of a further rise in safe asset 
supply-demand imbalances. 
Use in Portfolio Construction
Probably the most basic use of safe assets is 
as a source of steady income and capital preserva-
tion in portfolio construction. #e importance of 
this function varies considerably across investor 
types, based on their investment strategies and 
horizons. 
Japan
24.6
29.0
7.3
8.3
5.0
Intragovernmental holdings5
Domestic banks6
Japan Post Group
Insurance companies and
pension funds7
Other
Bank of Japan
Nonresidents
Total outstanding debt4 = $8.7 trillion
United Kingdom
10.8
29.0
10.019.7
30.4
0.1
Intragovernmental holdings
Domestic banks3
Insurance companies and
pension funds
Other
Bank of England
Nonresidents
3Monetary financial institutions excluding the central bank.
Total outstanding debt = $1.6 trillionUnited States
Domestic banks2
Insurance, pension, and
mutual funds
Other
Federal Reserve
Nonresidents
Total  outstanding marketable debt1 = $9.3 trillion
Euro area
26.5
11.9
7.8
52.1
1.7
Domestic banks8
Insurance companies and
pension funds9
Other
ESCB10
Nonresidents11
Total gross consolidated debt = $10.5 trillion
Figure 3.6. Sovereign Debt Holdings, by Type and Location of Investor
(In percent