, and one that can be thought of as reflecting exactly the considerations discussed here : whatever its merits, extending the lolr to broker - dealers would increase taxpayer exposure and potentially exacerbate moral hazard problems. hence there may be a rationale for restricting its availability and relying on regulation instead. bis central bankers ’ speeches scrubbers are costly, the mandate will also lead to higher energy prices, which will encourage some conservation, though perhaps not the socially optimal level. 11 this latter effect is the implicit tax aspect of the mandate. a more complicated case is when the regulator does not know ahead of time what the costs of building and installing scrubbers will be. here, mandating the use of a fixed number of scrubbers is potentially problematic : if the scrubbers turn out to be very expensive, the regulation will end up being more aggressive than socially desirable, leading to overinvestment in scrubbers and large cost increases for consumers ; however, if the scrubbers turn out to be cheaper than expected, the regulation will have been too soft. in other words, when the cost of the mitigation technology is significantly uncertain, a regulatory approach that fixes the quantity of mitigation is equivalent to one where the implicit tax rate bounces around a lot. by contrast, a regulatory approach that fixes the price of pollution instead of the quantity – say, by imposing a predetermined proportional tax rate directly on the amount of pollution emitted by the plant – is more forgiving in the face of this kind of uncertainty. this approach leaves the scrubber - installation decision to the manager of the plant, who can figure out what the scrubbers cost before deciding how to proceed. for example, if the scrubbers turn out to be unexpectedly expensive, the plant manager can install fewer of them. this flexibility translates into less variability in the effective regulatory burden and hence less variability in the price of energy to consumers. 12 scrubbers and high - quality liquid assets what does all this imply for the design of the lcr? let ’ s work through the analogy in detail. the analog to the power plant ’ s energy output is the gross amount of liquidity services created by a bank – via its deposits, the credit lines it provides to its customers, the prime brokerage services it offers, and so forth. the analog to the mitigation technology – the scrubbers – is the stock of hqla that the bank holds. and the analog to pollution is the net liquidity risk

on market - equilibrium considerations that are hard to fully fathom in advance, and that are likely to vary over time. this uncertainty needs to be understood, and respected. indeed, the market - equilibrium aspect of the problem represents a crucial distinction between capital regulation and liquidity regulation, and it is one reason why the latter is particularly to be more precise, global incremental demand coming from swap margin requirements is estimated at $ 1. 24 trillion ; see basel committee on banking supervision and board of the international organization of securities commissions ( 2013 ), margin requirements for non - centrally cleared derivatives : second consultative document ( basel : bank for international settlements and iosco, february ). of this $ 1. 24 trillion, $ 810 billion reflects margin ( net of collateral already collected ) on uncleared swaps, and $ 420 billion reflects margin on swaps that will migrate to central clearing. in addition, global incremental demand coming from the lcr is estimated at $ 2. 39 trillion ; see basel committee on banking supervision ( 2012 ), results of the basel iii monitoring exercise as of 30 june 2011 ( basel : bank for international settlements, april ). however this latter number is based on the december 2010 version of the lcr ; the recalibration of the lcr in the january 2013 final version will reduce this value for u. s. banks by roughly one - third. extrapolating this result to the global level suggests that incremental demand resulting from the lcr will fall by roughly $ 800 billion to $ 1. 6 trillion. committee on the global financial system ( forthcoming ), asset encumbrance, financial reform and the demand for collateral assets ( basel : bank for international settlements ). according to federal reserve board flow of funds data, as of december 31, 2012 the total stock of u. s. treasury securities stood at $ 11. 6 trillion, and the total stock of agency debt and mortgage - backed securities stood at $ 7. 5 trillion. a caveat here is that agency mortgage - backed securities are considered level 2 assets, so they can count for at most 40 percent of any bank's total holdings of hqla. bis central bankers ’ speeches challenging to implement. although capital regulation also imposes a tax on banks – to the extent that equity is a more expensive form of finance than debt – this tax wedge is, to a first approximation, a fixed constant for a given bank, independent of the scale of overall financial intermedia