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

Nathan Foley-Fisher (), Borghan Nezami Narajabad and Stephane Verani ()

No 22774, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The existing literature assumes that securities lenders primarily respond to demand from securities borrowers and reinvest their cash collateral in short-term markets. We offer compelling evidence for a supply channel, using new data matching U.S. life insurers' individual bond lending and reinvestment decisions to the universe of securities lending transactions. We show that an insurer's decision to lend a bond is positively correlated with liquidity transformation in its lending program, even after controlling for demand for that bond. We discuss how using securities lending cash collateral as a source of wholesale funding might impair securities markets in times of stress.

JEL-codes: G11 G22 G23 (search for similar items in EconPapers)
Date: 2016-10
New Economics Papers: this item is included in nep-ias
Note: AP CF
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