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—which collectively account for the
largest share of safe asset holdings—demand 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—particularly stabilization
funds—whose "scal stabilization role is similar to that
of reserve managers. #e demand for safe assets by
insurance companies and pension funds—long-term
safe asset investors—is 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—such as potential bank runs—that are beyond the scope
of this chapter. In many countries, such deposits are covered by
deposit insurance schemes that—within the covered maximum—
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‐2010
(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