Internalization Hides Stress Until It Doesn’t
Internalization allows prime brokers to absorb shifts in borrow demand without exposing them to the broader market. As long as internal inventory can meet demand, conditions appear stable.
Stress becomes visible only when internal capacity is exhausted. At that point, adjustments tend to be abrupt: rates gap, availability disappears, and narratives shift quickly.
From the outside, this can look like a sudden dislocation. In reality, pressure often builds quietly long before it becomes observable.
