Will Asset Managers Dash for Cash? Implications for Central Banks

David Cimon, Jean-Philippe Dion, Jean-Sebastien Fontaine and Jabir Sandhu

No 2025-05, Discussion Papers from Bank of Canada

Abstract: In times of stress, if the potential demand from asset managers for market liquidity approaches or exceeds dealers’ ability to intermediate, it could lead to a precautionary but disruptive dash for cash and may lead central banks to intervene. If the likelihood of such a dash for cash increases in the future, central banks may wish to consider enhancing their tool kits to provide asset managers with greater access to cash-like assets, regardless of dealers’ capacity to intermediate, while managing moral hazard and asset managers’ expectations of support from central banks in a crisis. We explore ways for central bank to use new facilities that make it easier for asset managers to convert existing assets to cash as well as possible ways to introduce new assets with liquidity that central banks would guarantee.

Keywords: Central bank research; Coronavirus disease (COVID-19); Financial institutions; Financial markets; Financial stability; Financial system regulation and policies (search for similar items in EconPapers)
JEL-codes: E5 E58 G0 G00 G01 G1 G2 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2025-03
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocadp:25-05

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