Journal of Financial and Quantitative Analysis Vol. 56 No. 6 2021
Liquidity Regulation and Financial Intermediaries
Abstract
The liquidity-coverage ratio (LCR) requires banks to hold enough liquidity to withstand a 30-day run. We study the effects of the LCR on broker-dealers, the financial intermediaries at the epicenter of the 2007–2009 crisis. The LCR brings some financial-stability benefits, including a significant maturity extension of triparty repos backed by lower-quality collateral, as well as the accumulation of larger liquidity pools. However, it also leads to less liquidity transformation by broker-dealers. We also discuss the liquidity risks not addressed by the LCR. Finally, we show that a major source of fire-sale risk was self-corrected before the introduction of postcrisis regulations.
- DOI
- 10.1017/s0022109020000654
- Volume
- 56
- Issue
- 6
- Pages
- 2237-2271
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref