Citation

Discussion Paper Details

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Full Details

Title: Liability Structure and Risk-Taking: Evidence from the Money Market Fund Industry

Author(s): Ramin P. Baghai, Mariassunta Giannetti and Ivika Jager

Publication Date: September 2018

Keyword(s): Fund exit, liquidity, Money market funds, Money-ness, regulation and Risk Taking

Programme Area(s): Financial Economics

Abstract: We exploit a change in regulation of money market funds to investigate how the structure of liabilities impacts financial intermediaries' asset holdings. We show that following a change in regulation, which has made prime money market funds' liabilities less money-like, safer funds exited the industry. The remaining funds have increased the riskiness of their portfolios, possibly in response to an increase in the sensitivity of flows to performance. As a result, issuers with lower risk of default have less access to funding from US money market funds. To the best of our knowledge, our paper provides the first evidence in support of theories highlighting that the characteristics of financial intermediaries' assets and liabilities are jointly determined.

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Bibliographic Reference

Baghai, R, Giannetti, M and Jager, I. 2018. 'Liability Structure and Risk-Taking: Evidence from the Money Market Fund Industry'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13151