The authors of this paper, Alyssa Anderson and Manjola Tase, have found evidence of a regulatory premium in the federal funds market related to the implementation of the Liquidity Coverage Ratio (LCR). They use difference-in-differences analysis and confidential bank level data on borrowing in the fed funds and Eurodollar market to compare the interest rates paid by banks subject to daily reporting of their liquidity profile (daily reporters) relative to other banks. The study finds 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. Additionally, on the days that banks borrowed in both the fed funds and Eurodollar markets, daily reporters paid a higher rate compared to other banks when borrowing in the fed funds market. This suggests that the LCR has had a significant impact on the interest rates paid by banks in the federal funds market.
