Shadow Insurance? Money Market Fund Investors and Bank Sponsorship

Stefan Jacewitz, Haluk Unal and Chengjun Wu
Additional contact information
Chengjun Wu: https://www.rhsmith.umd.edu/directory/chengjun-wu

No RWP 21-07, Research Working Paper from Federal Reserve Bank of Kansas City

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 expenses ratios increased with BHCs’ financial strength and the likelihood of their support; however, this expense ratio differential disappeared after the 2016 MMF reform.

Keywords: Bank Holding Company; Financial Crisis; money market funds; Banks and banking; Bank Run (search for similar items in EconPapers)
JEL-codes: G20 G21 G23 G28 H12 H81 (search for similar items in EconPapers)
Pages: 54
Date: 2021-08-27
New Economics Papers: this item is included in nep-ias and nep-mon
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Journal Article: Shadow Insurance? Money Market Fund Investors and Bank Sponsorship (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedkrw:93102

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DOI: 10.18651/RWP2021-07

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