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

Nathan Foley-Fisher, Borghan Narajabad, Stephane Verani
NBER Working Paper No. 22774
Issued in October 2016
The existing literature assumes that securities lenders primarily respond to demand from securities borrowers and reinvest their cash collateral in short-term markets. We offer compelling evidence for a supply channel, using new data matching U.S. life insurers’ individual bond lending and reinvestment decisions to the universe of securities lending transactions. We show that an insurer’s decision to lend a bond is positively correlated with liquidity transformation in its lending program, even after controlling for demand for that bond. We discuss how using securities lending cash collateral as a source of wholesale funding might impair securities markets in times of stress.
This paper is not publicly available, but more information can be found at the NBER website.

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