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Federal Reserve Bank of New York
Staff Reports
Dealer balance sheets and bond liquidity provision
Tobias Adrian
Nina Boyarchenko
Or Shachar
Abstract

Do regulations decrease dealer ability to intermediate trades? Using a unique data set of dealer-bond-level transactions, we link changes in liquidity of individual U.S. corporate bonds to dealers’ transaction activity and balance sheet constraints. We show that, prior to the financial crisis, bonds traded by more levered institutions and institutions with investment-bank-like characteristics were more liquid but this relationship reverses after the financial crisis. In addition, institutions that face more regulations after the crisis both reduce their overall volume of trade and have less ability to intermediate customer trades..


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Tobias Adrian & Nina Boyarchenko & Or Shachar, Dealer balance sheets and bond liquidity provision, Federal Reserve Bank of New York, Staff Reports 803, 01 Dec 2016, revised 01 Mar 2017.
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Keywords: bond liquidity; regulation; dealer constraints
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