The Value of Internal Sources of Funding Liquidity: U.S. Broker-Dealers and the Financial Crisis

Cecilia R. Caglio, Adam Copeland and Antoine Martin
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Cecilia R. Caglio: https://www.federalreserve.gov/econres/cecilia-r-caglio.htm

No 969, Staff Reports from Federal Reserve Bank of New York

Abstract: We use confidential and novel data to measure the benefit to broker-dealers of being affiliated with a bank holding company and the resulting access to internal sources of funding. We accomplish this by comparing the balance sheets of broker-dealers that are associated with bank holding companies to those that are not and we find that the latter dramatically re-structured their balance sheets during the 2007-09 financial crisis, pivoting away from trading illiquid assets and toward more liquid government securities. Specifically, we estimate that broker-dealers that are not associated with bank holding companies both increased repo as a share of total assets by 10 percentage points and also increased the share of long inventory devoted to government securities by 15 percentage points, relative to broker-dealers associated with bank holding companies.

Keywords: broker-dealers; shadow banking; liquidity risk; repo market (search for similar items in EconPapers)
JEL-codes: G2 G21 G23 (search for similar items in EconPapers)
Pages: 44
Date: 2021-05-01
New Economics Papers: this item is included in nep-ban and nep-cfn
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