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27 posts on "Dealers"
March 24, 2021

Did Dealers Fail to Make Markets during the Pandemic?

Sarkar and coauthors liquidity provision by dealers in several important financial markets during the COVID-19 pandemic: how much was provided, possible causes of any shortfalls, and the effects of the Federal Reserve’s actions to support the economy.

February 18, 2021

How Competitive are U.S. Treasury Repo Markets?

The Treasury repo market is at the center of the U.S. financial system, serving as a source of secured funding as well as providing liquidity for Treasuries in the secondary market. Recently, results published by the Bank for International Settlements (BIS) raised concerns that the repo market may be dominated by as few as four banks. In this post, we show that the secured funding portion of the repo market is competitive by demonstrating that trading is not concentrated overall and explaining how the pricing of inter-dealer repo trades is available to a wide-range of market participants. By extension, rate-indexes based on repo trades, such as SOFR, reflect a deep market with a broad set of participants.

July 17, 2020

MBS Market Dysfunctions in the Time of COVID-19

Haoyang Liu, Asani Sarkar, and coauthors study a particular aspect of MBS market disruptions by showing how a long-standing relationship between cash and forward markets broke down, in spite of dealers increasing the provision of liquidity. The analysis also highlights an innovative response by the Federal Reserve that seemed to have helped to normalize market functioning.

July 16, 2020

Federal Reserve Agency CMBS Purchases

On March 23, the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York initiated plans to purchase agency commercial mortgage-backed securities (agency CMBS) at the direction of the FOMC in order to support smooth market functioning of the markets for these securities. This post describes the deterioration in market conditions that led to agency CMBS purchases, how the Desk conducts these operations, and how market functioning has improved since the start of the purchase operations.

July 1, 2020

How Liquid Is the New 20-Year Treasury Bond?

Fleming and Ruela take a first look at the U.S. government’s new 20-year bond, using a short sample of available data to describe its trading activity and liquidity.

January 13, 2020

How Does Information Affect Liquidity in Over-the-Counter Markets?

A large volume of financial transactions occur in decentralized markets that commonly depend on a network of dealers. Dealers face two impediments to providing liquidity in these markets. First, dealers may face informed traders. Second, they may face costs associated with maintaining large balance sheets, either due to inventory or liquidity costs. In a recent paper, we study a model of over-the-counter (OTC) markets in which liquidity is endogenously determined by dealers who must contend with both asymmetric information and liquidity costs. This post provides an intuitive explanation of our model and the dynamics of interdealer liquidity.

Posted at 7:00 am in Dealers, Liquidity | Permalink | Comments (0)
October 15, 2019

From the Vault: A Look Back at the October 15, 2014, Flash Rally

Fleming, Johansson, Keane, and Meyer present a synopsis of work from the Liberty Street Economics archive on a 2014 flash episode when U.S. Treasury yields plunged and rebounded for no obvious reason.

June 26, 2019

How Large Are Default Spillovers in the U.S. Financial System?

When a financial firm suffers sufficiently high losses, it might default on its counterparties, who may in turn become unable to pay their own creditors, and so on. This “domino” or “cascade” effect can quickly propagate through the financial system, creating undesirable spillovers and unnecessary defaults. In this post, we use the framework that we discussed in “Assessing Contagion Risk in a Financial Network,” the first part of this two-part series, to answer the question: How vulnerable is the U.S. financial system to default spillovers?

April 3, 2019

Are New Repo Participants Gaining Ground?

Following the 2007-09 financial crisis, regulations were introduced that increased the cost of entering into repurchase agreements (repo) for bank holding companies (BHC). As a consequence, banks and securities dealers associated with BHCs, a set of firms which dominates the repo market, were predicted to pull back from the market. In this blog post, we examine whether this changed environment allowed new participants, particularly those not subject to the new regulations, to emerge. We find that although new participants have come on the scene and made gains, they remain a small part of the overall repo market.

Posted at 7:00 am in Dealers, Financial Markets, Repo | Permalink | Comments (1)
January 16, 2019

Customer and Employee Losses in Lehman’s Bankruptcy

In our second post on the Lehman bankruptcy [link to recovery blog], we discussed the cost to Lehman’s creditors from having their funds tied up in bankruptcy proceedings. In this post, we focus on losses to Lehman’s customers and employees from the destruction of firm-specific assets that could not be deployed as productively with another firm. Our conclusions are based in part on what happened after bankruptcy—whether, for example, customer accounts moved to other firms or employees found jobs elsewhere. While these indirect costs are difficult to pin down, the analysis suggests that the most notable losses were borne by mutual funds that relied on Lehman’s specialized brokerage advice and firms that used Lehman for its equity underwriting services.

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Liberty Street Economics features insight and analysis from New York Fed economists working at the intersection of research and policy. Launched in 2011, the blog takes its name from the Bank’s headquarters at 33 Liberty Street in Manhattan’s Financial District.

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