Economics at your fingertips  

An Evaluation of Money Market Fund Reform Proposals

Samuel Hanson (), David S Scharfstein and Adi Sunderam

IMF Economic Review, 2015, vol. 63, issue 4, 984-1023

Abstract: U.S. money market mutual funds (MMFs) are an important source of dollar funding for global financial institutions, particularly those headquartered outside the United States. MMFs proved to be a source of considerable instability during the financial crisis of 2007–09, resulting in extraordinary government support to help stabilize the funding of global financial institutions. In light of the problems that emerged during the crisis, a number of MMF reforms have been proposed, which are analyzed in this paper. The paper assumes that the main goal of MMF reform is safeguarding global financial stability. In light of this goal, reforms should reduce the ex ante incentives for MMFs to take excessive risk and increase the ex post resilience of MMFs to system-wide runs. The analysis suggests that requiring MMFs to have subordinated capital buffers could generate significant financial stability benefits. Subordinated capital provides MMFs with loss absorption capacity, lowering the probability that an MMF suffers losses large enough to trigger a run, and reduces incentives to take excessive risks. Other reform alternatives based on market forces, such as converting MMFs to a floating net asset value, may be less effective in protecting financial stability. The analysis sheds light on the fundamental tensions inherent in regulating the shadow banking system.

Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (18) Track citations by RSS feed

Downloads: (external link) Link to full text PDF (application/pdf) Link to full text HTML (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/41308/PS2

Access Statistics for this article

More articles in IMF Economic Review from Palgrave Macmillan, International Monetary Fund
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

Page updated 2023-03-26
Handle: RePEc:pal:imfecr:v:63:y:2015:i:4:p:984-1023