Liability Structure and Risk-Taking: Evidence from the Money Market Fund Industry

Mariassunta Giannetti, Ramin Baghai and Ivika Jager

No 13151, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We exploit a change in regulation of money market funds to investigate how the structure of liabilities impacts financial intermediaries’ asset holdings. We show that following a change in regulation, which has made prime money market funds’ liabilities less money-like, safer funds exited the industry. The remaining funds have increased the riskiness of their portfolios, possibly in response to an increase in the sensitivity of flows to performance. As a result, issuers with lower risk of default have less access to funding from US money market funds. To the best of our knowledge, our paper provides the first evidence in support of theories highlighting that the characteristics of financial intermediaries’ assets and liabilities are jointly determined.

Keywords: Money-ness; Fund exit; Liquidity; Money market funds; Risk taking (search for similar items in EconPapers)
JEL-codes: G1 G28 (search for similar items in EconPapers)
Date: 2018-09
New Economics Papers: this item is included in nep-cba
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Citations: View citations in EconPapers (1)

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Journal Article: Liability Structure and Risk Taking: Evidence from the Money Market Fund Industry (2022)
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