Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of Chicago
Working Paper Series
Securities Financing and Asset Markets: New Evidence
Tomas Breach
Thomas B. King
Abstract

This paper presents new evidence on bilateral securities financing based on the Federal Reserve's Senior Credit Officer Opinion Survey, which was launched in the wake of the financial crisis to provide a window into this otherwise opaque market. The survey asks large broker-dealers about terms at which they fund client positions, and the demand for such funding, across several different collateral types. Within asset classes, reported changes in spreads, haircuts, and other financing terms move closely together, and we show that they also covary with the state of the underlying cash securities markets. Funding conditions are particularly highly correlated with measures of cash-market liquidity, and, by exploiting dealers' self-reported reasons for changing terms, we show that most of this correlation results from dealers responding to liquidity, rather than the other way around. Controlling for securities-market conditions, haircuts and spreads are unresponsive to shifts in funding demand; however, they do tend to tighten when measures of dealer condition deteriorate.


Download Full text
Cite this item
Tomas Breach & Thomas B. King, Securities Financing and Asset Markets: New Evidence, Federal Reserve Bank of Chicago, Working Paper Series WP-2018-22, 27 Nov 2018.
More from this series
JEL Classification:
Subject headings:
Keywords: Repo; securities lending; adverse selection; haircut
DOI: 10.21033/wp-2018-22
For corrections, contact Bernie Flores ()
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