Prior to the financial crisis, the tenor basis market was virtually non-existent. As shown in the graph tenor basis, swaps used to trade at around plus or minus one basis point. Which essentially represented the payment of a small service fee for the convenience of swapping tenors, such as from three month EURIBOR to six month EURIBOR. The difference was negligible, indicating that market participants did not see much additional risk in holding longer dated tenors. However, this changed dramatically during the financial crisis. As seen in the spike on the graph around 2008, 2009, longer rates began to carry a significant risk premium compared to shorter rates, and the tenor basis swap became a tool to price this additional risk. At the peak, the five year, three month, six month Euro tenor basis surged to 25 basis points reflecting the market's recognition of the growing disparity between short and longer term funding risks. Initially, this tenor premium was driven by credit risk banks and other financial institutions were facing liquidity and solvency challenges, which led concerns about their ability to meet longer term obligations. As a result, investors demanded compensation for holding exposure to longer tenors, thus driving up the tenor basis. However, as the crisis subsided, the nature of the premium shifted. Post-crisis regulatory changes, such as the introduction of the liquidity coverage ratio, LCR, and the net stable funding ratio, or NSFR. They mandated that banks hold longer term stable funding. These rules were designed to ensure that banks are not overly reliant on short-term borrowing, which could lead to liquidity problems in times of market stress. As a consequence of these regulatory requirements, even though credit risk diminished as banks became safer, the tenor premium remained due to what is now largely a liquidity premium. The ongoing preference for long-term funding is driven by these regulations, which force banks to borrow at longer tenors to maintain liquidity ratios. This liquidity driven premium is now embedded in the pricing of tenor basis swaps, as we see in the graph where the basis still trades above pre-crisis levels, albeit at lower levels than during the peak of the crisis.