June 2016

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

Nathan Foley-Fisher, Borghan Narajabad, and Stephane Verani


The existing literature implicitly or explicitly assumes that securities lenders primarily respond to demand from borrowers and reinvest their cash collateral through short-term markets. Using a new dataset that matches every U.S. life insurer's bond portfolio, as well as their lending and reinvestment decisions, to the universe of securities lending transactions, we offer compelling evidence for an alternative strategy, in which securities lending programs are used to finance a portfolio of long-dated assets. We discuss how the liquidity and maturity mismatch associated with using securities lending as a source of wholesale funding could potentially impair the functioning of the securities market.

Accessible materials (.zip)

Keywords: Life insurers, market liquidity, securities lending, wholesale funding

DOI: http://dx.doi.org/10.17016/FEDS.2016.050

PDF: Full Paper

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Last Update: June 19, 2020