Securities Lending as Wholesale Funding: Evidence from the U.S. Life Insurance Industry

Nathan Foley-Fisher, Borghan Nezami Narajabad and Stephane Verani

No 2016-050, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: The existing literature implicitly or explicitly assumes that securities lenders primarily respond to demand from borrowers and reinvest their cash collateral through short-term markets. Using a new dataset that matches every U.S. life insurer?s bond portfolio, as well as their lending and reinvestment decisions, to the universe of securities lending transactions, we offer compelling evidence for an alternative strategy, in which securities lending programs are used to finance a portfolio of long-dated assets. We discuss how the liquidity and maturity mismatch associated with using securities lending as a source of wholesale funding could potentially impair the functioning of the securities market.

Keywords: Securities lending; Wholesale funding; Life insurers; Market liquidity (search for similar items in EconPapers)
JEL-codes: G11 G22 G23 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2016-05
New Economics Papers: this item is included in nep-ias
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Citations: View citations in EconPapers (6)

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http://www.federalreserve.gov/econresdata/feds/2016/files/2016050pap.pdf (application/pdf)

Related works:
Working Paper: Securities Lending as Wholesale Funding: Evidence from the U.S. Life Insurance Industry (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2016-50

DOI: 10.17016/FEDS.2016.050

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