In an International Monetary Fund Working Paper, two economists examined factors affecting demand for "high-quality liquid assets" ("HQLAs") in a stressed market following the hypothetical default of a critical clearing member.
The authors, Dermot Turing and Manmohan Singh, determined that the most significant impact for clearing members will arise due to the liquidity coverage obligations imposed under Basel III (i.e., the clearing member will need to obtain significant amounts of HQLAs). The authors also found that factors restricting the collateral supply may effectively be a "tightening of quasi-money supply," despite that doing so would be unusual in a market stress scenario.
Despite these concerns, the authors concluded that the fear that markets may not be able to cope with this demand "may be overstated." The authors noted HQLA shortages in Europe, but found that "collateral velocity" is inching higher in the United States for the first time since 2008.
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