Staff Working Paper No. 1,113
By Robert Czech and Win Monroe
We study the role of information in safe asset liquidity crises, using the 2022 UK LDI crisis as a laboratory. Contrary to the predictions of traditional adverse selection models, dealers initially reduce trade costs for informed investors, then raise costs and restrict liquidity provision for the broader market. These patterns are not explained by dealer-client relationships or client-supplied liquidity. We interpret the evidence as dealers learning from informed investors and reallocating liquidity towards them during periods of stress. Our findings suggest that dealers’ information chasing deepens market-wide liquidity shortages and amplifies liquidity crises.
This version was updated in July 2026.
Dealers, information, and liquidity crises in safe assets 