Moreover, the LCR plays no role in mitigating fire-sales externalities in the important matched-book case in which the dealer acts as an intermediary.9 If a dealer borrows on a collateralized basis with repo and then turns around and lends the proceeds to a hedge fund in a similar fashion, the LCR deems the dealer to have no net liquidity exposure – and hence imposes no incremental liquidity requirement – so long as the lending side of the transaction has a maturity of less than 30 days.
The implicit logic is that as long as the dealer can generate the necessary cash by not rolling over its loan to the hedge fund, it will always be able to handle any outflows of funding that come from being unable to roll over its own borrowing.