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How Post-2008 Financial Regulations Impacted Corporate Bond Liquidity, No. 22-05

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How Post-2008 Financial Regulations Impacted Corporate Bond Liquidity, No. 22-05

DATE: February 2022

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ABSTRACT: We review empirical findings regarding the impact of post-2008 financial regulations on the liquidity of corporate bond markets in the U.S. We first show that traditional measures of market liquidity improved in recent years. At the same time, the cost of illiquidity also increased. We then discuss findings showing that — after the regulations were implemented — dealer capital commitment, trade frequency and size decreased, while dealer bid-ask spread increased. The increase in dealer bid-ask spread is compensated by a change in the composition of the liquidity provision. Liquidity is increasingly being provided by customers instead of dealers.

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Dyskant, Lucas , Silva, André C. , Sultanum, Bruno and Federal Reserve Bank of Richmond. "How Post-2008 Financial Regulations Impacted Corporate Bond Liquidity, No. 22-05," Economic Brief (February 2022). https://fraser.stlouisfed.org/title/6034/item/610918, accessed on March 22, 2023.

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