Macroprudential regulation of investment funds

Giovanni di Iasio (), Christoph Kaufmann and Florian Wicknig

No 2695, Working Paper Series from European Central Bank

Abstract: The investment fund sector, the largest component of the non-bank financial system, is growing rapidly and the economy is becoming more reliant on investment fund financial intermediation. This paper builds a dynamic stochastic general equilibrium model with banks and investment funds. Without regulation, investment funds hold insuÿcient amounts of liquid bank deposits and must sell bonds when hit by large redemptions. Even when accounting for side effects related to a reduction of deposits held by households, a macroprudential liquidity requirement improves welfare by reducing bond liquidation and by increasing macroeconomic resilience to financial shocks as in March 2020. JEL Classification: E44, G18, G23

Keywords: liquidity regulation; macroprudential policy; non-bank financial intermediation (search for similar items in EconPapers)
Date: 2022-08
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge and nep-fdg
Note: 2857527
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20222695

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