Liquidity Flows to Bank-Affiliated Broker Dealers: Insights from Volumes and Prices

Using confidential transaction-level data on overnight tri-party Treasury repo from 2018–2025, we study liquidity flows within bank holding companies (BHCs) between primary dealers and affiliated entities. Affiliates, especially depository institutions with abundant reserves, provide a large share of dealers’ repo funding, yet affiliated repo borrowing is systematically more expensive: dealers pay an affiliation premium of about 4–5 bps relative to otherwise comparable unaffiliated trades, even after controlling for trade characteristics and market conditions. We interpret this premium as an internal transfer price. Because consolidated leverage regulation nets intra-BHC positions and lowers the marginal balance sheet cost of funding moved within the group, affiliated trades generate a regulatory "rent" that is shared between the dealer and the affiliate. Consistent with this mechanism, the premium widens when dealer balance sheet constraints are tighter, compresses sharply during a temporary leverage regulation exemption for reserves and Treasuries, and reappears after reinstatement. Finally, we estimate the pass-through of this internal liquidity channel to the broader financial system.