Liquidity Flows to Bank-Affiliated Broker Dealers: Insights from Volumes and Prices

Using confidential transaction-level data on overnight tri-party Treasury repo from 2018-2025, we study liquidity flows within bank holding companies (BHCs) between primary dealers and affiliated entities.Affiliates, especially depository institutions with abundant reserves, provide a large share of dealers' repo funding, yet affiliated repo borrowing is systematically more expensive: dealers pay an affiliation premium of about 4-5 bps relative to otherwise comparable unaffiliated trades, even after controlling for trade characteristics and market conditions.We interpret this premium as an internal transfer price.Because consolidated leverage regulation nets intra-BHC positions and lowers the marginal balance sheet cost of funding moved within the group, affiliated trades generate a regulatory "rent" that is shared between the dealer and the affiliate.Consistent with this mechanism, the premium widens when dealer balance sheet constraints are tighter, compresses sharply during a temporary leverage regulation exemption for reserves and Treasuries, and reappears after reinstatement.Finally, we estimate the pass-through of this internal liquidity channel to the broader financial system.