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

Author

Listed:
  • Jennie Bai
  • Erik Bostrom
  • Sebastian Infante
  • Victoria Ivashina

Abstract

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.

Suggested Citation

  • Jennie Bai & Erik Bostrom & Sebastian Infante & Victoria Ivashina, 2026. "Liquidity Flows to Bank-Affiliated Broker Dealers: Insights from Volumes and Prices," NBER Working Papers 34844, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:34844
    Note: AP CF
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    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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