Template-type: ReDIF-Paper 1.0
Author-Name: Dr. Lucas Marc Fuhrer
Author-Name-First: Lucas Marc
Author-Name-Last: Fuhrer
Author-Person: pfu165
Author-Name: Dr. Benjamin Müller
Author-Name-First: Benjamin
Author-Name-Last: Müller
Author-Person: pml37
Author-Name: Luzian Steiner
Author-Name-First: Luzian
Author-Name-Last: Steiner
Title: The Liquidity Coverage Ratio and Security Prices
Abstract: What is the added value of a security which qualifies as a "high-quality liquid asset" (HQLA) under the Basel III "Liquidity Coverage Ratio" (LCR)? In this paper, we quantify the added value in terms of yield changes and, as suggested by Stein (2013), call it HQLA premium. To do so, we exploit the introduction of the LCR in Switzerland as a unique quasi-natural experiment and we find evidence for the existence of an HQLA premium in the order of 4 basis points. Guided by theoretical considerations, we claim that the HQLA premium is state dependent and argue that our estimate is a lower bound measure. Furthermore, we discuss the implications of an economically significant HQLA premium. Thereby, we contribute to a better understanding of the LCR and its implications for financial markets.
Length: 52 pages
Creation-Date: 2016
Contact-Email: forschung@snb.ch
File-URL: https://www.snb.ch/en/publications/research/working-papers/2016/working_paper_2016_11
File-Format: text/html
Number: 2016-11
Classification-JEL: E50, G10, G18, G21, G28
Keywords: Basel III, Liquidity Coverage Ratio, high-quality liquid assets, HQLA premium
Handle: RePEc:snb:snbwpa:2016-11