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Federal Reserve Bank of New York
Staff Reports
Market liquidity after the financial crisis
Tobias Adrian
Michael J. Fleming
Or Shachar
Erik Vogt

This paper examines market liquidity in the post-crisis era in light of concerns that regulatory changes might have reduced dealers’ ability and willingness to make markets. We begin with a discussion of the broader trading environment, including an overview of regulations and their potential effects on dealer balance sheets and market making, but also considering additional drivers of market liquidity. We document a stagnation of dealer balance sheets after the financial crisis of 2007-09, which occurred concurrently with dealer balance sheet deleveraging. However, using high-frequency trade and quote data for U.S. Treasury securities and corporate bonds, we find only limited evidence of a deterioration in market liquidity.

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Tobias Adrian & Michael J. Fleming & Or Shachar & Erik Vogt, Market liquidity after the financial crisis, Federal Reserve Bank of New York, Staff Reports 796, 19 Oct 2016, revised 01 Jun 2017.
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Note: An earlier version of this paper circulated in May 2015 under the title “Vol-of-Vol and Market Making.”
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Keywords: liquidity; market making; Treasury market; corporate bonds; regulation
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