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Primary Dealer Systems in the European Union

States require money to function and therefore every government has to continuously raise new funds. On the financial markets, governments cannot be sure that auctions of their debt will be sufficiently attractive to financial investors, which is why they usually enter into cooperative agreements with selected banks. The best known and most widespread form of cooperation is the primary dealer system. A primary dealer is a bank that commits to purchasing a certain percentage of government debt at each auction and to intervene as a formalized market maker in the debt market if necessary. Most of the primary dealer systems involve the banks being financially neither remunerated nor compensated for their activities, and if there is some kind of financial compensation, it is on a low level. The article analyses European primary dealer systems and asks why banks are willing to participate in these systems. I will show that both domestic and foreign banks use their status as primary dealers to build long-term relationships with one or more European governments and to gain an advantage on the global stage. In Bourdieu’s terms, primary dealer banks use their financial capital to accumulate social and symbolic capital.

Posted in: Journal Article Abstracts on 06/29/2023 | Link to this post on IFP |
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