LCR Premium in the Federal Funds Market

Alyssa G. Anderson and Manjola Tase
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Alyssa G. Anderson: https://www.federalreserve.gov/econres/alyssa-g-anderson.htm
Manjola Tase: https://www.federalreserve.gov/econres/manjola-tase.htm

No 2023-071, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We document the existence of a regulatory premium in the federal funds market related to the implementation of the Liquidity Coverage Ratio (LCR). We use difference-in-differences analysis and confidential bank level data on borrowing in the fed funds and Eurodollar markets to compare the interest rates paid by banks subject to daily reporting of their liquidity profile (daily reporters) relative to other banks. We find that, after the implementation of LCR, daily reporters paid a higher rate compared to other banks when borrowing in the fed funds market given the LCR-favorability of many of the lenders in this market. In addition, on the days that banks borrowed in both the fed funds and Eurodollar markets, daily reporters paid a higher rate than other banks for their borrowing in the fed funds market but not for their borrowing in the Eurodollar market.

Keywords: Eurodollars; Liquidity Coverage Ratio; market segmentation (search for similar items in EconPapers)
JEL-codes: E49 E52 G21 G28 (search for similar items in EconPapers)
Pages: 30 p.
Date: 2023-11-09
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fmk and nep-mon
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2023-71

DOI: 10.17016/FEDS.2023.071

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