Authors: Cecilia Caglio, Adam Copeland, and Antoine Martin
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Staff Reports
The Value of Internal Sources of Funding Liquidity: U.S. Broker-Dealers and the Financial Crisis
Number 969
May 2021
May 2021
JEL classification: G2, G21, G23
We use confidential and novel data to measure the benefit to broker-dealers of being affiliated with a bank holding company and the resulting access to internal sources of funding. We accomplish this by comparing the balance sheets of broker-dealers that are associated with bank holding companies to those that are not and we find that the latter dramatically re-structured their balance sheets during the 2007-09 financial crisis, pivoting away from trading illiquid assets and toward more liquid government securities. Specifically, we estimate that broker-dealers that are not associated with bank holding companies both increased repo as a share of total assets by 10 percentage points and also increased the share of long inventory devoted to government securities by 15 percentage points, relative to broker-dealers associated with bank holding companies.
AUTHOR DISCLOSURE STATEMENT(S)
Cecilia Caglio
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html. Furthermore, FINRA reviewed the output of our analysis so as to ensure that the published results do not reveal information about individual broker-dealers.
Adam Copeland
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html. Furthermore, FINRA reviewed the output of our analysis so as to ensure that the published results do not reveal information about individual broker-dealers.
Antoine Martin
I do no have any relevant or material financial interests that relate to the research described in this paper.
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html. Furthermore, FINRA reviewed the output of our analysis so as to ensure that the published results do not reveal information about individual broker-dealers.
Adam Copeland
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html. Furthermore, FINRA reviewed the output of our analysis so as to ensure that the published results do not reveal information about individual broker-dealers.
Antoine Martin
I do no have any relevant or material financial interests that relate to the research described in this paper.
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