Regs Are Weakening Secondary CMBS Market Liquidity

Lisa Pendergast

WASHINGTON, DC–A study by three senior staff members of the Federal Reserve Bank of New York that was recently published in the April 2017 Journal of Monetary Economics has come to the conclusion that regulations — in particular the Volcker Rule and Basel III — have weakened secondary bond market liquidity. While the study was based on corporate bond data, the conclusions apply to the CMBS market, as well.

The study affirmed what the industry largely already knew — which was that regulation had impacted liquidity in the secondary markets, causing structural and seemingly permanent changes. One end result, according to the paper, is that “…[I]nstitutions more affected by post-crisis regulation are less able to intermediate customer needs.”