Presenta:
Sebastián Infante, Federal Reserve Board, USA
Abstract
This paper studies the role of internal repo markets to intermediate funding between counterparties affiliated with the same bank holding company (BHC). Using confidential transaction-level data, we find that Treasury repo rates between affiliated entities are significantly higher than those between unaffiliated parties—a phenomenon we label the affiliated premium. The premium is more pronounced when dealers face tighter balance sheet constraints, indicating that regulatory capital requirements increase the cost of external borrowing and make internal funding more valuable. We show that during a temporary regulatory relief period when leverage requirements were relaxed, the affiliation premium nearly vanished, only to re-emerge once regulations were reinstated. Our findings highlight a unique competitive advantage for dealers within large BHCs: the ability to tap internal liquidity from affiliated banks, which effectively redistributes reserves across the broader financial system and has implications for market liquidity and monetary policy transmission.
