Money Market Funds and Regulation

Craig M. Lewis ()
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Craig M. Lewis: Owen Graduate School of Management, Vanderbilt University, Nashville, Tennessee 37203

Annual Review of Financial Economics, 2016, vol. 8, issue 1, 25-51

Abstract: This article examines money market funds and the regulation that was promulgated in the wake of the Lehman Brothers bankruptcy during the financial crisis of 2007 and 2008. Various explanations for the ensuing run-like behavior are discussed, including a first-mover advantage related to potential fire sales, the ability to redeem shares at a stable $1.00 when funds are valued below $1.00, and flights to quality and transparency. We then discuss regulatory reform, beginning with the SEC's 2010 amendments and concluding with its 2014 Money Market Fund Reform rules, which require (a) all funds to implement liquidity fees and redemption gates and (b) institutional prime funds to price at their floating net asset value. The economic underpinnings of the SEC's final policy choices are discussed and compared to alternatives, such as capital buffers, that were considered but not adopted.

Keywords: financial crisis; liquidity runs; capital buffers; liquidity fees; redemption gates (search for similar items in EconPapers)
JEL-codes: G18 G23 G28 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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