Working Paper

Intermediary Asset Pricing during the National Banking Era

Abstract: Financial intermediary balance sheets matter for asset returns even when these intermediaries do not directly participate in the relevant asset markets. During the National Banking Era, liquidity conditions for the New York Clearinghouse (NYCH) banks forecast excess returns for stocks, bonds, and currencies. The NYCH banks had little to no direct participation in these markets; their main link to these markets was through securities financing. Liquidity conditions affect asset prices through the credit growth of the NYCH banks, which shapes marginal investors' discount rates. I use institutional features of this era to provide evidence in favor of this mechanism.

Keywords: Liquidity management; Margin loans; Intermediary asset pricing; National banks;

JEL Classification: G12; G21; E51; N21;

https://doi.org/10.17016/IFDP.2020.1302

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: International Finance Discussion Papers

Publication Date: 2020-09-18

Number: 1302