Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/265228 
Year of Publication: 
2021
Series/Report no.: 
ESRB Working Paper Series No. 127
Publisher: 
European Systemic Risk Board (ESRB), European System of Financial Supervision, Frankfurt a. M.
Abstract: 
Regulation of Money Market Funds (MMFs) in the EU requires some categories of MMFs to consider applying liquidity management tools if they breach a minimum 'weekly' liquidity requirement. Anticipation of the application of such tools is a plausible amplifier of run risks. Using a larger European dataset than previously studied, we assess whether proximity to liquidity thresholds explains differences in redemptions both at the start of the COVID-19 crisis and in the following months. We assess this effect for MMFs subject to and exempt from the liquidity regulation. The evidence shows that outflows can be robustly associated with proximity to minimum liquidity requirements in the peak of the crisis for funds required to consider suspending redemptions if breaches occur. In the post-crisis phase the redemption-liquidity relationship does not appear to be specifically related to mandated consideration of the suspension of redemptions. The evidence supports consideration of countercyclical liquidity requirements or buffers that are more usable in times of stress.
Subjects: 
Money market funds
Liquidity limits
JEL: 
G01
G15
G23
G28
G18
G20
F30
Persistent Identifier of the first edition: 
ISBN: 
978-92-9472-234-8
Document Type: 
Working Paper

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