I develop a model of money market funds (MMFs) to study the ability of sponsor support to provide stability to the industry. I find that strategic complementarities in the sponsors’ support decisions can make MMFs vulnerable to runs different from the canonical bank-runs: it may lead to runs of intermediaries on each other through firesales in the money market. I then use the model to analyze the effects of imposing a floating net asset value and capital requirements on MMFs. I find that general equilibrium effects, which are mostly ignored in the policy discussion, can overturn conventional intuition.
fire sales money market funds regulation runs support