Bank balance sheet constraints and bond liquidity

Johannes Breckenfelder and Victoria Ivashina

No 2589, Working Paper Series from European Central Bank

Abstract: We explore the ties between bonds and individual dealers formed through home advantage and the persistence of previous underwriting relationships. Building on these connections, we show that the introduction of the leverage ratio for the European banks had a large impact on exposed bonds’ liquidity. Moreover, based on these ties, we show that bond mutual fund panic following the 2020 pandemic outbreak affected substantially more mutual funds with the larger exposures to dealer banks’ balance sheet constraints. JEL Classification: G12, G18, G21

Keywords: bond liquidity; capital requirements; COVID-19; leverage ratio; market-making; mutual funds (search for similar items in EconPapers)
Date: 2021-09
New Economics Papers: this item is included in nep-ban, nep-eec, nep-fmk and nep-isf
Note: 1125999
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20212589

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