LCRs in low-liquidity settings lead to big externalities
Introducing a liquidity coverage ratio in jurisdictions with a limited supply of high-quality liquid assets can have significant side effects, leading to a large liquidity premium and pushing the risk-free rate to the floor of the central bank's interest rate corridor, a recent research paper shows.
On the economics of committed liquidity facilities by Morten Bech of the BIS and Todd Keister of Rutgers University, presented at a Reserve Bank of Australia conference this week, studies the effects
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