Securities Lending as Wholesale Funding: Evidence from the U.S. Life Insurance Industry

38 Pages Posted: 27 Jun 2016

See all articles by Nathan Foley-Fisher

Nathan Foley-Fisher

Board of Governors of the Federal Reserve System

Borghan Narajabad

Board of Governors of the Federal Reserve System

Stephane Verani

Board of Governors of the Federal Reserve System

Multiple version iconThere are 3 versions of this paper

Date Written: 2016-05

Abstract

The existing literature implicitly or explicitly assumes that securities lenders primarily respond to demand from borrowers and reinvest their cash collateral through short-term markets. Using a new dataset that matches every U.S. life insurer’s bond portfolio, as well as their lending and reinvestment decisions, to the universe of securities lending transactions, we offer compelling evidence for an alternative strategy, in which securities lending programs are used to finance a portfolio of long-dated assets. We discuss how the liquidity and maturity mismatch associated with using securities lending as a source of wholesale funding could potentially impair the functioning of the securities market.

Keywords: Securities lending, Wholesale funding, Life insurers, Market liquidity

JEL Classification: G11, G22, G23

Suggested Citation

Foley-Fisher, Nathan and Narajabad, Borghan and Verani, Stephane, Securities Lending as Wholesale Funding: Evidence from the U.S. Life Insurance Industry (2016-05). FEDS Working Paper No. 2016-050, Available at SSRN: https://ssrn.com/abstract=2800504 or http://dx.doi.org/10.17016/FEDS.2016.050

Nathan Foley-Fisher (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Borghan Narajabad

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Stephane Verani

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

HOME PAGE: http://www.federalreserve.gov/econresdata/stephane-verani.htm

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
34
Abstract Views
406
PlumX Metrics