Intermediary Asset Pricing During the National Banking Era

59 Pages Posted: 28 Sep 2020

See all articles by Colin Weiss

Colin Weiss

Board of Governors of the Federal Reserve System

Date Written: September, 2020

Abstract

Financial intermediary balance sheets matter for asset returns even when these intermediaries do not directly participate in the relevant asset markets. During the National Banking Era, liquidity conditions for the New York Clearinghouse (NYCH) banks forecast excess returns for stocks, bonds, and currencies. The NYCH banks had little to no direct participation in these markets; their main link to these markets was through securities financing. Liquidity conditions affect asset prices through the credit growth of the NYCH banks, which shapes marginal investors' discount rates. I use institutional features of this era to provide evidence in favor of this mechanism.

Keywords: Liquidity management, Margin loans, Intermediary asset pricing, National banks

JEL Classification: G12, G21, E51, N21

Suggested Citation

Weiss, Colin, Intermediary Asset Pricing During the National Banking Era (September, 2020). FRB International Finance Discussion Paper No. 1302, Available at SSRN: https://ssrn.com/abstract=3699647 or http://dx.doi.org/10.17016/IFDP.2020.1302

Colin Weiss (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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

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