Shadow Insurance? Money Market Fund Investors and Bank Sponsorship

Do global banks spread global imbalances? Asset-backed commercial paper during the financial crisis of 2007–09

Stefan Jacewitz, Haluk Unal and Chengjun Wu

The Review of Corporate Finance Studies, 2022, vol. 11, issue 2, 414-456

Abstract: We argue that bank holding companies (BHCs) extend shadow insurance to the prime institutional money market funds (PI-MMFs) they sponsor and that PI-MMFs price this shadow insurance by charging investors significantly higher expense ratios and paying lower net yields. We provide evidence that after September 2008, expense ratios at BHC-sponsored PI-MMFs increased more than at non-BHC-sponsored PI-MMFs. Despite higher expense ratios, BHC-sponsored PI-MMFs did not experience larger redemptions than non-BHC-sponsored PI-MMFs. In addition, we show that expense ratios increased with BHCs’ financial strength and the likelihood of their support; however, this expense ratio differential disappeared after the 2016 MMF reform. (JEL G2, G21, G23, G28, H12, H81)

Date: 2022
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