Dealer balance sheets and bond liquidity provision

Do regulations decrease dealer ability to intermediate trades? Using a unique dataset of dealer-bond-level transactions, we link changes in liquidity of individual U.S. corporate bonds to dealers' transaction activity and balance sheet constraints. We show that, prior to the financial crisis, bonds traded by more levered institutions and institutions with investment bank like characteristics were more liquid but this relationship reverses after the financial crisis. In addition, institutions that face more regulations after the crisis both reduce their overall volume of trade and have less ability to intermediate customer trades.