In the case of the power plant, I argued that a regulation that calls for a fixed quantity of mitigation – that is, for a fixed number of scrubbers – is more attractive when there is little uncertainty about the cost of these scrubbers.
In the context of the LCR, the cost of mitigation is the premium that the bank must pay – in the form of reduced interest income – for its stock of HQLA. And, crucially, this HQLA premium is determined in market equilibrium and depends on the total supply of safe assets in the system, relative to the demand for those assets.