Pricing Liquidity without Preemptive Runs

Marco Cipriani, Antoine Martin and Patrick E. McCabe
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Patrick E. McCabe: https://www.federalreserve.gov/econres/patrick-e-mccabe.htm

No 20220131, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Prime money market funds (MMFs) are vulnerable to runs. This was dramatically illustrated in September 2008 and March 2020, when massive outflows from prime MMFs worsened stress in the short-term funding markets and eased only after taxpayer-supported interventions by the Treasury and the Federal Reserve. In this post, we describe how mechanisms like swing pricing that charge a price for liquidity can reduce the vulnerability of prime MMFs without triggering preemptive runs.

Keywords: MMF; swing pricing; liquidity; preemptive; preemptive runs (search for similar items in EconPapers)
JEL-codes: G01 G23 (search for similar items in EconPapers)
Date: 2022-01-31
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