Home About Latest Browse RSS Advanced Search

Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
Over-the-Counter Market Liquidity and Securities Lending
Nathan Foley-Fisher
Stefan Gissler
Stephane Verani
Abstract

This paper studies how over-the-counter market liquidity is affected by securities lending. We combine micro-data on corporate bond market trades with securities lending transactions and individual corporate bond holdings by U.S. insurance companies. Applying a difference-in-differences empirical strategy, we show that the shutdown of AIG's securities lending program in 2008 caused a statistically and economically significant reduction in the market liquidity of corporate bonds predominantly held by AIG. We also show that an important mechanism behind the decrease in corporate bond liquidity was a shift towards relatively small trades among a greater number of dealers in the interdealer market.


Download Full text
Cite this item
Nathan Foley-Fisher & Stefan Gissler & Stephane Verani, Over-the-Counter Market Liquidity and Securities Lending, Board of Governors of the Federal Reserve System (US), Finance and Economics Discussion Series 2019-011, 19 Feb 2019.
More from this series
JEL Classification:
Subject headings:
Keywords: Broker-dealers ; Corporate bonds ; Insurance companies ; Market liquidity ; Over-the-counter markets ; Securities lending
DOI: 10.17016/FEDS.2019.011
For corrections, contact Ryan Wolfslayer ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal