Changes in the Returns to Market Making
Abstract: Since the financial crisis, major U.S. banking institutions have increased their capital ratios in response to tighter capital requirements. Some market analysts have asserted that the higher capital and liquidity requirements are driving up the costs of market making and reducing market liquidity. If regulations were, in fact, increasing the cost of market making, one would expect to see a rise in the expected returns to that activity. In this post, we estimate market-making returns in equity and corporate bond markets to assess the impact of regulations.
File format is text/html
Description: Full text
Provider: Federal Reserve Bank of New York
Part of Series: Liberty Street Economics
Publication Date: 2015-10-07