1 The Cost of Bank Balance Sheet Space 14 1.1 The setting 15 1.2 Debt overhang has risen 18 1.3 Liquidity provision by dealers 25 1.4 Modigliani-Miller and asset substitution 27 1.5 Impact on swap markets 29 1.6 Strategic implications for dealers 31 1.7 Asset pricing implications 33 1.

8 The leverage-ratio rule 34 1.9 European versus U.S. banks 35 1.10 Competition and price transparency 37 1.11 The efficient stability-liquidity frontier 38 2 Leverage Rule Distortions 42 2.1 Leverage rule distortions 42 2.2 Repo intermediation under the SLR 46 2.

3 SLR degrades monetary-policy passthrough 55 3 Dealer Funding Costs 59 3.1 An illustrative example: T-bill investment 60 3.2 Post-crisis increases in dealer funding costs 61 3.3 A model of dealer funding costs 64 3.4 CIP arbitrage could harm shareholders 67 3.5 Regulatory capital and the CIP basis 71 4 Market Design Implications 74 4.1 Opaque bilateral trade is inefficient 75 4.2 Multilateral trade 77 4.

3 Size discovery 79 4.4 Mandating multilateral trade facilities 82 4.5 Post-trade price transparency 86 4.6 Market infrastructure 90 4.7 Compression trading 93 Bibliography 95.