Capturing the Illiquidity Premium

39 Pages Posted: 25 Feb 2020

See all articles by Nathan Foley-Fisher

Nathan Foley-Fisher

Board of Governors of the Federal Reserve System

Nathan Heinrich

Board of Governors of the Federal Reserve System

Stephane Verani

Board of Governors of the Federal Reserve System

Date Written: February 9, 2020

Abstract

This paper studies the restructuring of financial intermediation in the United States since the 2007-09 financial crisis. We show that the largest U.S. life insurers have entered private debt markets as banks refocused on commercial banking, against a backdrop of unconventional monetary policies and tighter bank regulations. Through complex on- and off-balance sheet arrangements, these insurers, many of whom are controlled by private equity firms, are acquiring and deploying vast amounts of annuity capital to capture the illiquidity premium. The new architecture of the financial system features novel forms of lending. That said, life insurers have become more vulnerable to an aggregate shock to the corporate sector.

Keywords: shadow banking, insurance companies, annuities, private debt, private equity, commercial real estate, leveraged loans, collateralized loan obligations

JEL Classification: G23, G12, G18

Suggested Citation

Foley-Fisher, Nathan and Heinrich, Nathan and Verani, Stephane, Capturing the Illiquidity Premium (February 9, 2020). Available at SSRN: https://ssrn.com/abstract=3534847 or http://dx.doi.org/10.2139/ssrn.3534847

Nathan Foley-Fisher

Board of Governors of the Federal Reserve System ( email )

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

Nathan Heinrich

Board of Governors of the Federal Reserve System ( email )

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

Stephane Verani (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th & C. St., N.W.
Washington, DC 20551
United States

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

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