EconStor >
Federal Reserve Bank of New York >
Staff Reports, Federal Reserve Bank of New York >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/60899
  
Title:The minimum balance at risk: A proposal to mitigate the systemic risks posed by money market funds PDF Logo
Authors:McCabe, Patrick E.
Cipriani, Marco
Holscher, Michael
Martin, Antoine
Issue Date:2012
Series/Report no.:Staff Report, Federal Reserve Bank of New York 564
Abstract:This paper introduces a proposal for money market fund (MMF) reform that could mitigate systemic risks arising from these funds by protecting shareholders, such as retail investors, who do not redeem quickly from distressed funds. Our proposal would require that a small fraction of each MMF investor's recent balances, called the minimum balance at risk (MBR), be demarcated to absorb losses if the fund is liquidated. Most regular transactions in the fund would be unaffected, but redemptions of the MBR would be delayed for thirty days. A key feature of the proposal is that large redemptions would subordinate a portion of an investor's MBR, creating a disincentive to redeem if the fund is likely to have losses. In normal times, when the risk of MMF losses is remote, subordination would have little effect on incentives. We use empirical evidence, including new data on MMF losses from the U.S. Treasury and the Securities and Exchange Commission, to calibrate an MBR rule that would reduce the vulnerability of MMFs to runs and protect investors who do not redeem quickly in crises.
Subjects:money market funds
runs
redemption restrictions
systemic risk
JEL:G01
G20
G28
Document Type:Working Paper
Appears in Collections:Staff Reports, Federal Reserve Bank of New York

Files in This Item:
File Description SizeFormat
720243955.pdf6.39 MBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/60899

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.