The Fragility of an MMF-Intermediated Financial System

Marco Cipriani, Antoine Martin and Bruno Parigi

No 20131223, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Since the financial crisis of 2007-09—and, in particular, the run on prime money market funds (MMFs) in September 2008—policymakers have been concerned that the funds’ fragility may render banks themselves more susceptible to risk. For instance, in a recent article and speech arguing in favor of MMF reform, New York Fed President Bill Dudley stated that MMF fragility may contribute to financial market systemic risk. The idea that the susceptibility of MMFs to runs may make the financial system more unstable seems intuitive, but is it correct? In this post, we show that the idea isn’t only intuitively appealing, it’s also sound from an economic theory standpoint: MMF fragility is indeed a concern for the stability of the banking system and a contributing factor to financial market systemic risk.

Keywords: Banks; Money Market Funds; Fragility; Financial Intermediation (search for similar items in EconPapers)
JEL-codes: G2 (search for similar items in EconPapers)
Date: 2013-12-23
References: Add references at CitEc
Citations:

Downloads: (external link)
https://libertystreeteconomics.newyorkfed.org/2013 ... inancial-system.html Full text (text/html)

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: https://EconPapers.repec.org/RePEc:fip:fednls:86914

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Liberty Street Economics from Federal Reserve Bank of New York Contact information at EDIRC.
Bibliographic data for series maintained by Gabriella Bucciarelli ().