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Liquidity and shadow banking

Aftab, Z. and Varotto, S. (2019) Liquidity and shadow banking. Journal of International Money and Finance, 99. 102080. ISSN 0261-5606

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To link to this item DOI: 10.1016/j.jimonfin.2019.102080


Using a unique dataset of the detailed portfolio holdings of US money market funds, we study the behaviour of such funds in the context of the European sovereign debt crisis. These important players in the shadow banking sector were particularly vulnerable to liquidity shocks before the introduction of minimum liquidity requirements. We analyse the impact of these requirements and show that they have considerably increased the resilience of prime funds. We also see that prime funds increase their liquidity to counter expected investors’ redemptions in crisis periods. However, liquidity does not shelter risky funds from lower inflows.

Item Type:Article
Divisions:Henley Business School > ICMA Centre
ID Code:86270
Uncontrolled Keywords:Sovereign Debt Crisis, Shadow Banking, Liquidity, Money Market Fund, Financial Regulation

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