FRIC research creates headlines again


Research by FRIC member and associate professor at the Department of Finance, Jens Dick-Nielsen and his co-authors is the basis for a discussion of the current LCR (Liquidity Coverage Ratio) regulation in the EU


Research by FRIC member Jens Dick-Nielsen and co-authors changed EU banking regulation in 2013, when the European Banking Authorities (EBA) cited the research paper by Jens Dick-Nielsen and co-authors as the key argument for changing the status for Danish covered bonds in the final EU Capital Requirement Directive draft (CRD IV).

Now in 2016, this same research is the basis for a discussion about the current LCR (Liquidity Coverage Ratio) regulation in the EU. In short, the LCR regulation requires banks to hold a significant amount of liquid assets, i.e. assets that can quickly be converted into cash in case of large outflows. However, the definition of which types of assets that count as highly liquid is controversial.

The Danish member of the European parliament Morten Messerschmidt (DF) has presented the research by letter to the European Commission and asked them to consider the effects of this regulation in the Danish context. Since in the case of Danish mortgage bonds, only the largest series are currently considered highly liquid. However, the research by Jens Dick-Nielsen and co-authors argue that even the smaller series have the characteristics of highly liquid assets. Obtaining this classification is important for the pricing of these bonds and therefore for the mortgages paid by Danish house-owners, i.e. higher price means lower interest rates.

See the full article from Finanswatch (in Danish) via the link above.

The page was last edited by: Center for Financial Frictions // 06/21/2016