Risk-averse dealers in a risk-free market-The role of trading desk risk limits☆

• 成果类型: Article
• 署名作者: Li, Dan; Petrasek, Lubomir; Tian, Mary
• 署名单位: Federal Reserve System - USA; Federal Reserve System Board of Governors
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2026.104290
• 发表日期: 2026-07
• 页码: 104290
• 关键词: Dealer intermediation capacity; treasury market; Risk limits; regulation; market liquidity; liquidity; CRISIS; funds

摘要

We show that self-imposed risk limits significantly constrain dealers' risk-taking and Treasury market intermediation, especially during market stress. Dealers near value-at-risk (VaR) limits reduce positions and demand higher compensation for risk. During March 2020, constrained dealers sold more Treasuries to the Fed at lower prices and provided less liquidity to clients. An aggregate measure of dealer VaR constraints closely tracks Treasury market illiquidity. Our findings offer a micro-foundation for the volatility-liquidity link and show that, in crises, policy actions that remove risk from intermediary balance sheets may be more effective at supporting Treasury market functioning than regulatory relief.