Securities Lending as Wholesale Funding: Evidence from the U.S. Life Insurance Industry
Working Paper 22774
DOI 10.3386/w22774
Issue Date
The existing literature assumes that securities lenders primarily respond to demand from securities borrowers and reinvest their cash collateral in short-term markets. We offer compelling evidence for a supply channel, using new data matching U.S. life insurers' individual bond lending and reinvestment decisions to the universe of securities lending transactions. We show that an insurer's decision to lend a bond is positively correlated with liquidity transformation in its lending program, even after controlling for demand for that bond. We discuss how using securities lending cash collateral as a source of wholesale funding might impair securities markets in times of stress.
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Copy CitationNathan Foley-Fisher, Borghan Narajabad, and Stephane Verani, "Securities Lending as Wholesale Funding: Evidence from the U.S. Life Insurance Industry," NBER Working Paper 22774 (2016), https://doi.org/10.3386/w22774.