Mind the liquidity gap: a discussion of money market fund reform proposals

Michael Grill, Luis Molestina Vivar, Christian Mücke, O’Donnell, Charles, O’Sullivan, Sean, Michael Wedow, Moritz Weis and Christian Weistroffer

Macroprudential Bulletin, 2022, vol. 16

Abstract: This article assesses proposed reforms to the European Money Market Funds (MMF) Regulation to enhance the resilience of the sector. Specifically, the article provides a rationale for requiring private debt MMFs to hold higher levels of liquid assets, of which a part should be public debt, and considers the design and calibration of such a requirement. The article also proposes that the impediments to the use of liquidity buffers should be removed and authorities should have a role in releasing these buffers. Finally, while the removal of a stable net asset value for low-volatility MMFs would reduce cliff effects, we argue that this might not be necessary if liquidity requirements for these private debt MMFs are sufficiently strengthened. JEL Classification: G23, G28, G01

Keywords: Financial stability; Liquidity risk; Money market funds; Regulation (search for similar items in EconPapers)
Date: 2022-01
Note: 1280809
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