Staff Reports
The Value of Internal Sources of Funding Liquidity: U.S. Broker-Dealers and the Financial Crisis
Number 969
May 2021

JEL classification: G2, G21, G23

Authors: Cecilia Caglio, Adam Copeland, and Antoine Martin

We use confidential and novel data to measure the benefit to broker-dealers of being affiliated with a bank holding company and the resulting access to internal sources of funding. We accomplish this by comparing the balance sheets of broker-dealers that are associated with bank holding companies to those that are not and we find that the latter dramatically re-structured their balance sheets during the 2007-09 financial crisis, pivoting away from trading illiquid assets and toward more liquid government securities. Specifically, we estimate that broker-dealers that are not associated with bank holding companies both increased repo as a share of total assets by 10 percentage points and also increased the share of long inventory devoted to government securities by 15 percentage points, relative to broker-dealers associated with bank holding companies.

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