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- Title
Liquidity Regulation and Financial Intermediaries.
- Authors
Macchiavelli, Marco; Pettit, Luke
- 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.
- Subjects
LIQUIDITY (Economics); LIQUIDITY coverage ratio; BANKING industry; DISTRIBUTORS (Commerce); FINANCIAL institutions; MATURITY (Finance); BROKERS
- Publication
Journal of Financial & Quantitative Analysis, 2021, Vol 56, Issue 6, p2237
- ISSN
0022-1090
- Publication type
Article
- DOI
10.1017/S0022109020000654