The LCR Premium in Peru: Estimating the Impact of a Regulatory Supply Shock on LCR Ratio

Delia Ruiz, Diego Franco and Walter Cuba
Additional contact information
Delia Ruiz: Central Reserve Bank of Peru
Diego Franco: Central Reserve Bank of Peru
Walter Cuba: Central Reserve Bank of Peru

No 13-2025, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

Abstract: This paper examines the existence and magnitude of an "LCR premium" in Peru's interbank market by exploiting the July 1, 2019 reform that eliminated the punitive outflow weights on repo collateral under the Liquidity Coverage Ratio (LCR). Using daily transactions from January 2019 to February 2020, a Difference-in-Differences (DiD) design reveals repo rates declined by an additional 3-4 pp relative to unsecured loans. We then embed this supply-shock in a structural IV-2SLS framework, finding that a 1 pp increase in the rate reduces repo volumes by 2,495.5 mm PEN. Robustness checks - including alternative +-3/4/6-month windows, dynamic DiD and placebo DiD- confirm instrument validity and parallel trends. Post-reform, average monthly repo activity jumped from ~5,800 mm to ~22,400 mm PEN, demonstrating that even modest liquidityrule adjustments can quickly eliminate the pre-reform penalty on secured funding and reorient banks toward collateralized trades.

Keywords: Liquidity coverage ratio; Liquidity coverage ratio premium; interbank funding; repo markets (search for similar items in EconPapers)
JEL-codes: C32 E43 G21 G28 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2025-08-11
New Economics Papers: this item is included in nep-mon
References: Add references at CitEc
Citations:

Downloads: (external link)
http://repec.graduateinstitute.ch/pdfs/Working_papers/HEIDWP13-2025.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gii:giihei:heidwp13-2025

Access Statistics for this paper

More papers in IHEID Working Papers from Economics Section, The Graduate Institute of International Studies Contact information at EDIRC.
Bibliographic data for series maintained by Dorina Dobre ().